The Fed cuts rates for 2nd time since financial crisis — but defies Trump’s calls for ‘big’ stimulus

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REUTERS/Jonathan Ernst

  • The Federal Reserve decided to ease borrowing costs for the second time since the financial crisis on Wednesday.
  • The decision came as policymakers sought to insulate the longest economic expansion on record from growing risks.
  • The adjustment was broadly in line with expectations, but far from the aggressive stimulus President Donald Trump has repeatedly demanded.
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The Federal Reserve eased borrowing costs for the second time since the financial crisis Wednesday and left the door open to future cuts. The move came as policymakers sought to insulate the longest economic expansion on record from growing risks.

Following a closely watched policy meeting, the central bank lowered interest rates to a target range of 1.75% to 2%. The quarter percentage point adjustment was broadly in line with expectations but remained far from the aggressive stimulus President Donald Trump has repeatedly demanded.

The FOMC has become starkly divided over how to weigh solid fundamentals against signs of strain on the economy in recent months. At its last meeting in July, some thought that a larger cut should have been made while others wanted to keep rates unchanged.

“Fed Chair Jerome Powell will have to steer a careful course between reassuring markets and recognizing an economy still exhibiting record low unemployment, fairly steady growth, and signs of a small but meaningful uptick in inflation,” said John Lynch, the chief investment strategist at LPL Financial.

An escalating trade dispute between the Trump administration and China has further muddled the outlook for policymakers. The effects of tariffs have grown increasingly evident in American sectors including manufacturing, which contracted this month for the first time in three years.

The largest economies plan to extend tariffs to far more consumer products this December, putting businesses and households more directly at risk of becoming caught in the crossfire. That could disrupt some of the brightest spots in the US economy: hiring and consumer spending.

“For now, the US-China trade war shows no sign of slowing, and the Fed will want to cushion the impact of the latest round of import tariffs,” said Cailin Birch, global economist at The Economist Intelligence Unit.

Trump has pressured the Fed to take drastic steps to juice the economy, which flashed a key recession warning in August for the first time since 2007. Recent polls suggest Americans are becoming nervous about tariffs and would blame the president in the event of a downturn.

“…The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries,” Trump wrote on Twitter early Monday. “They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue. And now, on top of it all, the Oil hit. Big Interest Rate Drop, Stimulus!”

Read more: Trump will likely be let down on his demand for a ‘Big Interest Rate Drop’ this week