- The Federal Reserve cut its key interest rate for the third time this year, but omitted “act as appropriate to sustain the current expansion” from its official statement.
- Investors view the phrase as a signal the bank is considering future cuts.
- Leaving out the phrase hints that the Federal Open Market Committee is pausing its streak of rate changes.
- The interest rate sits at an appropriate level for the current pace of economic growth, Fed Chair Jerome Powell said in a Wednesday press conference.
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The Federal Reserve on Wednesday cut its key interest rate for the third time this year, but the omission of a particular phrase may be just as relevant a decision for investors.
The past two cuts included a statement that the central bank would “act as appropriate” to sustain the record-long US economic expansion. Wednesday’s statement from the Federal Open Market Committee left out the clause out.
The language used in FOMC statements is highly scrutinized by investors, with some analysts even quantifying the sentiment of certain phrases to predict future policy decisions. Many economists view the “act as appropriate” phrase to signal the central bank is considering future cuts.
The intentional omission forecasts a pause to rate cuts. Powell said Wednesday that rates are at an appropriate level, and noted that the committee’s members “are not thinking about raising rates right now.”
The central bank may wait for more data on trade tensions and global economic slowdown to judge whether additional rate cuts are needed. Recent cuts were employed to insulate the US economy from trade uncertainty and risk of economic contraction.
The vote for Wednesday’s rate cut lends some credence to the phrase’s significance. While St. Louis Fed President James Bullard voted for a 50-basis-point cut in September, he was less dovish in the Wednesday meeting and voted in line with the majority for a 25-point cut.
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