WASHINGTON: As President Donald Trump’s trade wars drag on, and the global economy weakens, the US Federal Reserve is inching closer to its first interest rate cut in more than a decade.
But investors hoping to see the benchmark lending rate begin to drop this week are almost certain to be disappointed, reports AFP.After preaching patience and leaving rates untouched since December, financial markets will be watching closely for a change of tone from the central bank and its chairman, Jerome Powell, and a sign the Fed is ready to step in to boost the economy.
Policymakers will hold two days of deliberations starting Tuesday, and for now are expected to keep the key interest rate in a range of 2.25-2.5 percent.
The Fed raised rates nine times in the last three years as the economy recovered and put millions of Americans back to work, and officials repeatedly said they expected the growth to continue.
But Trump’s aggressive tariff policies have shaken confidence, and some central bankers have begun to acknowledge a chill in the air.
The consensus is that the Fed is poised to switch directions and begin cutting rates. The only question is when.
James Bullard, president of the Fed’s St Louis regional branch, was the first to make the move, saying early this month that a rate cut could be needed “soon.”Just days later, Powell himself opened the door to a possible move, saying the Fed would do whatever necessary “to sustain the expansion” — a noticeable shift in posture.
Then Fed Vice Chair Richard Clarida added to the mix the possibility of “insurance cuts” — preemptively lowering rates just in case the economic outlook starts to deteriorate.
Wall Street welcomed this dovish talk, which drove a recovery in stocks after the rout in May. Futures markets as of Friday were forecasting as many as three cuts for this year, in July, September and December.
“In the old days, we’d have used the language the Fed has an easing bias,” John Ryding, chief economist at RDQ Economics, told AFP.
“They are predisposed to cut.”
Since the Fed’s last announcement at the end of May, the world’s largest economy has continued to send mixed signals.