Fed Cuts Rates But Drops Pledge To Act As Appropriate To Sustain Expansion

For the third straight meeting, the Federal Reserve voted to cut interest by a quarter point on Wednesday, but a notable change to the accompanying statement suggests the central bank may put further monetary policy easing on hold.

The Fed announced its widely expected to decision to lower the target range for the federal funds rate by 25 basis points to 1-1/2 to 1-3/4 percent.

The quarter point rate cut follows two matching moves at the Fed’s meetings in September and July, which marked the first rate cuts in over a decade.

However, the Fed’s accompanying statement removed a key line indicating the central bank would continue to “act as appropriate to sustain the expansion.”

The line was included in each of the Fed’s three previous statements and was seen as pointing toward a near-term rate cut.

The Fed said it would continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

“It’s a small change, but suggests less willingness to continue cutting rates in future,” FHN Financial Chief Economist Chris Low said about removing the line.

Low added, “In other words, while the FOMC was previously in the midst of a mid-cycle series of rate cuts and assessing whether to end it, the new language suggests they are ready to end it, but alert for evidence it should continue.”

The Fed’s statement reiterated that the labor market remains strong and that economic activity has been rising at a moderate rate.

The central bank noted that household spending has been rising at a strong pace, while business fixed investment and exports remain weak.

On the inflation front, the Fed said overall inflation and core inflation, which excludes food and energy prices, continue to run below 2 percent and that longer-term inflation expectations are little changed.

The Fed views a sustained economic expansion, strong labor market conditions, and inflation near its 2 percent target as the most likely outcomes but acknowledged uncertainties about this outlook remain.

Members of the Federal Open Market Committee voted 8 to 2 in favor of cuttings rates, with Kansas City Fed President Esther George and Boston Fed President Eric Rosengren preferring to maintain the target range at 1-3/4 percent to 2 percent.

The Fed is scheduled to hold its next monetary policy meeting on December 10-11, with CME Group’s FedWatch tool currently indicating a 76.3 percent chance the central bank will leave rates unchanged.

Shortly, Federal Reserve Chairman Jerome Powell is scheduled to hold his customary post-meeting press conference.

The material has been provided by InstaForex Company – www.instaforex.com