Federal Reserve looks at interest rate cut to give boost slowing economy

Analysts are expecting the Federal Reserve System (FRS), which is the central banking system of the US, to cut interest rates today which will be the second time it has done so since the ‘Great Recession’ of the 2008-2009. However, economic analysts say that act may not be enough to offset damages that have been brought on by the trade war between the US and China.

Kathy Bostjancic, who is the chief U.S. financial economist at Oxford Economics says, Jerome Powell, who is the Federal Reserve Chairman, has to make it very clear that the FRS is going to do whatever it will take to sustain the expansion.

Powell has been sending that message this month as he told an audience in Switzerland, that because of the uncertainty of the trade policy some businesses are holding back on making investments, therefore, the FRS is obligated to support the economy in what ever way possible.

The FRS cut interest rates in July 2019 because of trade uncertainty back then too, but Wall Street wasn’t satisfied because at the time Powell seemed to suggest it may be the last rate cut for some time.

However, Bostjancic says that economic indicators have worsened since then and is hoping for the additional rate cut as well as indications for more cuts in the future, hopefully in October and December. However, she believes that even with more rate cuts it will not be enough to boost the slowing economy which she  believes will slow to 1.6% next year.

The trade war isn’t the only economic drawback. Slowing economic growth in other countries is having its effect on the US economy as well. Also, the effects of the 2017 tax cut have begun to wane. Not only that, growing uncertainly about oil prices after the attack last weekend on Saudi Arabia is having its effect as well.

President Trump is also concerned with the slowing economy and is pressuring the FRS to aggressively cut interest rates even down to zero or lower.

But Powell says that the FRS does not tolerate any political factors or influences to persuade any FRS decisions.

Matthew Luzzetti, who is chief U.S. economist at Deutsche Bank, says that the FRS cutting tax rates is not going to completely alleviate the slowing down of economic growth because of trade uncertainty.

NPR comments that the solution would be the end to the trade war.

Reply