The Federal Reserve Wednesday lowered its benchmark interest rate by a quarter-point, and many of the central bank’s monetary-policy makers said they believed another quarter-point cut this year would be appropriate.
In a move to support the economy, the Fed reduced its benchmark short-term rate to a range between 1.75% and 2%. Wednesday’s was the second cut in as many months. Fed officials think a few rate cuts will help the economy weather the uncertainty caused mainly by President Donald Trump’s trade war with China.
There were three dissents from the quarter-point cut. That’s the first time that trio of no votes have been case since September 2016. Boston Fed President Eric Rosengren and Kansas City Fed President Esther George voted against the move because they wanted the Fed to hold rates steady. They also voted against the Fed’s cut in July. St. Louis Fed President James Bullard dissented because he wanted a more aggressive half-point cut.
The dot-plot projections showed just how split the committee is. Seven officials said they believed there would be one more rate cut this year. Five indicated they thought this move would be the year’s last. Five more members thought no move was needed after July, including at Wednesday’s meeting.
While the seven who see another easing yet this year is not a majority, it is a sizable block.
In its statement, the Fed said it would “act as appropriate to sustain the expansion. They said the economy continues to grow at a moderate rate, with a strong labor market. Household spending has been strong, while business spending has weakened.
Economists said that uncertainty from the trade war is causing firms to be cautious about making future investment decisions.
To address the volatility seen in money-markets this week, the Fed trimmed the interest rate it pays banks for excess reserves parked at the central bank by 5 basis points to try to keep that rate within the range of the fed funds rate. The interest rate on excess reserves (IOER), will now be set at 1.80%. Financial firms had to pay much higher interest rates for excess reserves over the past two days.
were lower ahead of the Fed’s decision and deepened that drop in the wake of the announcement but then turned sufficiently upward in the final half-hour of the session to close modestly higher.