Fed Cuts Interest Rate 3rd Time in 2019 With Hints of a Pause

-edited

The FOMC committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent.

Following the third rate cut in 2019, the Federal Reserve issued this short FOMC Statement.

Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will 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.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Dissents

Esther George and Eric Rosengren dissented. Both preferred to maintain the current target range of 1-3/4 percent to 2 percent.

Statement Tracker

The Wall Street Journal Statement Tracker shows a plethora of changes primarily because there was no discussion of repos as in the previous statement.

Hints of a Pause

The WSJ notes Officials removed language used in June, July and September in which the rate-setting committee said it would "act as appropriate" to sustain the economic expansion. They replaced that phrase with a milder alternative. "The committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path" of its target rate.

The WSJ took this to as Hints of Pause as the Fed thinks it is done cutting rates in 2019.

CME Fedwatch Odds

For now, the market believes the Fed will not cut again this year.

Current odds are 20.1% of one further cut and 0.8% of a 50 basis point cut.

Earlier today, the BEA reported 3rd-Quarter Real GDP Rises 1.9%. That was near the top of the Econoday consensus range.

Consumer spending was strong.

Weak consumer spending would change those December rate cut odds in a hurry.

Mike "Mish" Shedlock

Comments (34)
No. 1-14
LB412
LB412

Glad they are at least "signaling" a pause from here.

Tengen
Tengen

Well, at least Trump has his next talking point after he finishes milking the bin La... er, al-Baghdadi nonsense.

Always interesting to watch how the news cycle slows down a bit at rare times like this when all four major sports leagues are playing simultaneously.

Herkie
Herkie

Well, no wonder Wall Street is up, the statement that interest rates will not go higher till inflation picks up "significantly" means rate are never going up again because we could have Wiemar level inflation and they would pretend it does not exist. But, of course tomorrow the market might be down sharply when they show their displeasure at not being handed the last key to the last vault of our money printing machines.

Unemployment is starting to tick up in key states, consumer spending is up some, but it has to be because prices are rising far faster than is reported in the fraudulent CPI. Earnings are crap with some exceptions, stagnant wages are getting even more stagnant, and consumer confidence is falling, along with home sales. There will be more cuts this year, if not one 50 BP cut then at least 2 25's. Because only the blind will not see we are either in or just now entering recession. And their tools are not going to be adequate for the job.

Bonus points for the fact that Fraudzilla will be impeached and removed from office well ahead of the next election.

numike
numike

Life has become better, comrades, life has become more cheerful Stalin 1935

numike
numike

Utah? Salt Lake City is the place with the highest leverage ratio not in California. A housing shortage is one of the key reasons buyers in Salt Lake may need to stretch their budgets so much in order to be able to afford a home. https://www.lendingtree.com/home/most-stretched-homebuyers-in-america-in-2019/

Blurtman
Blurtman

More cowbell!

thimk
thimk

i am really po'd, i was enjoying my risk free 2%+ short term brokered cd's . not no more . thanks powell , may a holy yak befoul your gatorade

Country Bob
Country Bob

The Fed just announced that all private sector baby boomer pensions have been canceled effective immediately. Its just a matter of time before local, state and eventually the federal government defaults on public sector pensions also.

That is what the Fed really announced today, but they know most public school "graduates" can't do math and won't figure out what artificially low rates do to pensions... like lottery tickets (also sold by government), Fed rates have become an added tax on people who can't do math.

The Fed's actions have no longer have any material effect on commerce (they haven't since at least 2008 if not earlier).

Central economic planners always make a mess

Ian Alexander
Ian Alexander

I think a "data dependent" Fed wouldn't have cut rates. Data hasn't been good, but at least it's been less bad. If there was ever a chance to pause, this was it. Of course, they likely know more than we do. The next leg down could soon follow.

Tony Bennett
Tony Bennett

"For now, the market believes the Fed will not cut again this year."

...

For the September "dot plot" not a single member predicted lower rate than current for rest of 2019. If they cut again in December ... they got some 'splaining to do ... if everything going along swimmingly (per FOMC).

Boot6761
Boot6761

read his statement carefully as he dodged the truth about the RePo market...did not come right out and say "it isn'tQE4 but fibbed about the need to keep liquidity in the system...truth be told the same thing that happened last year was happening again...Hedge funds are being redeemed out...401K's have been maxed out by most consumers...and there is not enough money in the system to cash people out...Powell is a puppet...nothing more and nothing less...this feels just like the end of 2007 all over again...

Casual_Observer
Casual_Observer

Haha. Another great call by me to move back into bonds a few months ago. I now have double digit returns for total bond portfolio for 2018 and 2019.

Despite what the Fed says we are headed lower next year. The pause will be until 2020.

Jackula
Jackula

So what's next to keep this mess afloat? Massive fiscal policy via public works like Japan and China? Helicopter money? I'll bet they'll all be tried. I've got a really bad feeling about negative interest rates...

MorrisWR
MorrisWR

Tre Fed follows the market rates. They needed to cut to get in line with the market as always. Charting shows the Fed always adjusts after Treasuries. I used to track the charts but now I just see where Treasures are at auction and trade depending on where it points to the Fed going.