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The 1 Percent Solution

The US economy is rolling along at present because interest rates are so low.

The Federal Reserve slashed the target range for the federal funds rate to 1.5-1.75 percent during its October meeting, the third rate cut so far this year, amid muted inflation pressures and concerns about the economic outlook. But at the same time, the central bank signaled pause in easing cycle as the previous reference that it “will act as appropriate” to sustain the economic expansion was removed from the policy statement. Interest Rate in the United States averaged 5.64 percent from 1971 until 2019, reaching an all time high of 20 percent in March of 1980 and a record low of 0.25 percent in December of 2008.

The Fed considers that the current fed funds rate of 1.5-1.75% will remain appropriate, as long as incoming information about the economy did not result in a reassessment of the economic outlook, minutes from the last FOMC meeting showed, suggesting no further rate cuts should be expected in the near future.

But while lower interest rates may relieve some pressure on the U.S. economy, a moderate cut will likely do little to appease Trump as he scrambles to regain leverage in his trade war with China.

Trump has long complained about the Fed’s refusal to tilt trade talks with China in his favor by boosting the economy and cheapening the dollar with lower interest rates. Federal Reserve Chairman Jerome Powell and other Fed officials have disavowed any pressure to stray from their legal charter to remain politically neutral and fight Trump’s trade battles.

As Trump struggles to strike an elusive deal with China before the 2020 election, a slim rate cut risks intensifying the president’s challenge to the Fed’s independence.

“The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries,” Trump tweeted Monday.

“They can’t believe how lucky they are that Jay Powell & the Fed don’t have a clue.”

Trump’s battle with China has created a series of daunting political and economic obstacles for the Fed as it seeks to extend a record-long stretch of U.S. growth.

Powell faces a difficult balancing act and divisions within his own central bank. Minutes from the bank’s last meeting showed that while some policymakers favored deeper cuts, others backed no rate cuts.

U.S. economic and job growth have slowed throughout 2019 amid a manufacturing recession and decline in business investment driven in part by Trump’s trade battle with China and the European Union. There are also new potential shocks to the economy following an attack on Saudi oil fields that could affect as much as 5 percent of the world’s total daily crude oil production.

Though the U.S. still boasts unemployment near record lows and strong consumer spending, the Fed has sought to lower interest rates as a hedge against a dour economic outlook.

Source: The Hill

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By Ted

I'm a former member of the Radio Television News Directors Association and during the last 30 years I've written news stories, sports stories, stories for children, puzzles, and plays for puppets.

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