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Fed cuts key rate for first time in more than a decade

Thursday, August 1, 2019

Associated Press


The Federal Reserve cut its key interest rate Wednesday for the first time in a decade to try to counter the impact of President Donald Trump’s trade wars, stubbornly low inflation and global weakness.

It left open the possibility of future rate cuts, but perhaps not as many as Wall Street had been hoping for. During a news conference, Chairman Jerome Powell struggled to find just the right words to articulate the Fed’s strategy and what might prompt future rate cuts at a time when the risk of a recession in the United States seems relatively low.

The Dow Jones Industrial Average tumbled to finish down 333 points, or 1.2 percent. The yield on the 10-year Treasury note fell to 2.01 percent from 2.06 percent late Tuesday, a sharp drop.

The central bank reduced its benchmark rate – which affects many loans for households and businesses – by a quarter-point to a range of 2 percent to 2.25 percent. It’s the first rate cut since December 2008 during the depths of the Great Recession, when the Fed slashed its rate to a record low near zero and kept it there until 2015. The economy is far healthier now despite risks to what’s become the longest expansion on record.

But Powell stressed that the Fed is worried about the consequences of Trump’s trade war and sluggish economies overseas.

“Weak global growth and trade tensions are having an effect on the U.S. economy,” he said.

Powell also said that sluggishness in some sectors of the U.S. economy, like manufacturing, along with inflation chronically below the Fed’s target level justify the “insurance of a rate cut now.”

Yet he struggled to explain clearly whether, why and by how much the Fed might further reduce rates.