Federal Reserve Chairman Jerome Powell officially announced a widely expected cut to the federal funds rate yesterday, dropping the central bank's target by a quarter-point to 2%. The reduction is the first since 2008, in the early stages of the Great Recession.
Powell referred to the move as a midcycle adjustment, declining to commit to further cuts.
"It's not the beginning of a long series of rate cuts — I didn't say it's just one," Powell said at a press conference. "What we're seeing is that it's appropriate to adjust policy to a somewhat more accommodative stance over time, and that’s how we’re looking at it."
Traditional Fed policy calls for rate hikes during times of economic prosperity, a course officials followed throughout 2018. But calls from President Donald Trump and others to abandon that plan have intensified as new threats to the U.S. economy — including relatively slow growth in China and Europe, lower manufacturing rates worldwide, and the president’s own disputes with major trading partners — have intensified.
Trump was less than impressed with the quarter-point cut, tweeting Wednesday, "What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China. As usual, Powell let us down."
Writing for The New York Times, economics correspondent Neil Irwin cheered the move, describing it as a "recalibration of strategy" and "recognition that the world has changed" since 2008.
"The action telegraphs that the Fed is willing to act to keep the economy on its growth path even in the absence of decisive evidence that the economy is slowing, which bodes well for the decade-long expansion to continue through next year’s presidential election and beyond," Irwin wrote.
Lower interest rates should benefit the payment-driven automotive industry as well, and not just by lowering the cost of new auto loans, said Tom Kontos, chief economist at KAR Auction Services.
"I anticipate this will also help U.S. vehicle exports," Kontos said in a statement. "Vehicle export prices will be more competitive versus vehicles produced in countries and regions that are easing their monetary policies. Finally, I was comfortable with the Fed holding interest rates, but I see this as an insurance move to support continued economic growth."
Originally posted on Automotive Fleet