Fed cuts rates again, telegraphs more rate cuts by year end

The Federal Reserve on Wednesday cut interest rates again by 25 basis points to a new target range of 1.75% to 2%, and telegraphed a strong likelihood of one more rate cut by the end of the year.

But a record number of dissents under the Powell-led Fed raises questions about the uniformity of the Fed’s outlook. St. Louis Fed President James Bullard voted for a 50 basis point cut but Kansas City Fed President Esther George and Boston Fed President Eric Rosengren voted for no change to the benchmark interest rate today. Both George and Rosengren dissented against the July decision as well, also preferring at that time to hold rates steady.

For comparison, in its June meeting, eight participants predicted one to two rate cuts before the new year. With the Fed now having delivered two rate cuts, policymakers appear to be acknowledging that darker developments since June have warranted a stronger reaction from the central bank than initially thought.

Despite all the noise, the committee’s economic projections on components of the U.S. economy paint a brighter picture domestically. Policymakers actually increased their projections on U.S. GDP growth, with the median member now projecting GDP growth of 2.2% in 2019, a notch up from the median projection of 2.1% in the last dot plot release in June.

In its decision today, the Fed had another short-term fix: lowering the interest it pays on reserves by 30 basis points instead of by 25 basis points . In May, the Fed made a similar move, lowering interest on reserves from 2.4% to 2.35%. At the time the target range was between 2.25% to 2.5%.

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