Federal Open Market Committee has cut rates by 25 basis points

WASHINGTON–As many had expected, the Federal Open Market Committee has cut rates by 25 basis points to a target rate for the federal funds rate of 2% to 2.25%.

“Information received since the Federal Open Market Committee met in June indicates that the labor market remains strong and that economic activity has been rising at a moderate rate,” the Fed said. “Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. 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.”

The Fed said it moved to cut rates to meet its statutory mandate of fostering maximum employment and price stability.

“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% objective are the most likely outcomes, but uncertainties about this outlook remain,” the Fed said. “As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

Following the rate decision, Fed Chairman Jerome Powell said during a press conference, "We are thinking of it as a mid-cycle adjustment to policy. I'm contrasting it with the beginning of a lengthy cutting cycle."

That statement caused the Dow to drop more than 300 points as the markets interpreted it to mean no more rate cuts might take place. Powell later clarified the Fed may consider another rate cut sometime soon, but the cycle of cuts will not last a long period of time.

Separately, the FOMC said it will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent.

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