The U.S. central bank cut its target range for the federal funds rate by another 25 basis points to 1.75 - 2.0 percent and has now cut it by 50 points this year following a cut in July as global monetary policy continues to loosen to counter weaker business investment and exports as a consequence of the uncertainty unleashed by the trade conflict between the U.S. and China.
"This action supports the Committee's view that sustained expansion of economic activity, strong labour market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain," the FOMC, the Fed's policy-making committee said.
Illustrating this pervasive uncertainty about the economic outlook, seven FOMC members voted in favor of the 25-point rate cut while one member, James Bullard of the St. Louis Fed, voted to cut the rate by 50 points while Esther George and Eric Rosengren voted to maintain the rate.
Another example of the split within the FOMC was reflected in the so-called dot plot, which shows members' assessment of how rates should evolve. Seven members see another 25 basis point rate cut this year while five see no further cuts and five think the rate should be 25 points higher.
In an update to its economic projections, the FOMC lowered its forecast for the federal funds rate to average 1.9 percent this year, down from its June projection of 2.4 percent, and forecast the rate would remain steady next year to average 1.9 percent, down from 2.1 percent forecast in June.
But in 2021 the Fed projects it will return to monetary tightening and sees the fed funds rate rising to 2.1 percent and then to 2.4 percent in 2022 as inflation slowly rises to the Fed's 2.0 percent target in 2021 and 2022.
The forecast for economic growth in coming years is largely as projected in June, with economic growth seen easing to 2.0 percent in 2020, 1.9 percent in 2021 and 1.8 percent in 2022. This year growth is seen at 2.2 percent, up from June's forecast of 2.1 percent.
To help implement its monetary policy stance, the FOMC also decided to lower the rate paid on required and excess reserve balances to 1.80 percent.
The Fed said by setting this rate below the top range for the federal funds rate is aimed at fostering trading in the fed funds market at rates that are within its target range.
The Board of Governors of the Federal Reserve System released the following statement:
"Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent."
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