The US Federal Reserve in Washington. (File photo: AFP)

Washington (People’s Daily) - The US Federal Reserve cut its benchmark interest rate Wednesday by 25 basis points to a new target range of 1.75 percent to 2 percent and signaled there’s a strong likelihood of one more rate cut by the end of the year. This is the second cut this year. 

Fed chairman Jerome Powell said at a news conference the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks” like trade uncertainty, as well as geopolitical tensions which necessitated the action. “We took this step to keep the economy strong,” he said. 

“Since the middle of last year, the global growth outlook has weakened. Weakness in global growth and trade policy uncertainty have weighed on the economy and imposed ongoing risks,” he said, adding that “elevated uncertainty” is weighing on business investment and exports. And if the economy weakens, a “more extensive” series of rate cuts would be appropriate. 

US economic data looks quite mixed. Consumer spending has been solid, but manufacturing has weakened. Many economists fear that the US economy could fall into a recession in the next two years. 

In its official statement the Fed said that policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.” The Fed said business investment had “weakened” since its last policy setting meeting in July, when it cut rates for the first time since 2008. "Although household spending has been rising at a strong pace, business fixed investment and exports have weakened," the Fed noted. 

Inflation has also remained stubbornly below the central bank's 2 percent target. The Fed also added new language in its statement noting that US exports have also weakened, underscoring the impact of the trade war on the central bank’s reading of the US economy. Little else was changed in the statement beyond the new description of household spending as “rising at a strong pace.” 

The Dow dropped 200 points as the Fed failed to give a clear signal of future rate cuts. While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. That is up from zero officials who expected rates to remain steady when the Fed last released economic projections in June. “That suggests that momentum is shifting toward additional accommodation,” the New York Times reported. 

But President Trump was clearly dissatisfied with the cut. “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!,” Mr Trump tweeted shortly after the Fed’s announcement. 

“I continue to believe that independence of the Federal Reserve from direct political control has served the public well over time, and I assure you that my colleagues and I will continue to conduct monetary policies without regard to political considerations,” Powell responded during his press conference.