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The Fed Is Poised to Cut Rates Again. Here’s What to Watch. – The New York Times, The New York Times

The Fed Is Poised to Cut Rates Again. Here’s What to Watch. – The New York Times, The New York Times


The central bank is set to announce its decision at 2 pm There will be a lot of moving parts, but policymakers are unlikely to do enough to satisfy President Trump.

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CreditCreditTJ Kirkpatrick for The New York Times

WASHINGTON – Federal Reserve officials are expected to cut interest rates for a second time on Wednesday, a move that could prove divisive among Fed officials and aggravate President Trump’s anger toward the central bank.

TheFed’s rate decision, which will be announced at 2 pm in Washington, will be accompanied by a fresh set of quarterly economic projections and followed by a news conference at 2: 30 PM with the chair Jerome H. Powell.

That means markets will have plenty of information to digest as they try to game out what comes next for the Fed, which lowered its policy interest rate by a quarter point for the first time in more than a decade in July as officials tried toprotect the economyagainst uncertainty created by Mr . Trump’s trade war and a global economic slowdown.

Mr. Trump has been pushing for an extensive cut, one that leaves ratesat or below zero, but investors anticipate another quarter-point move – setting rates in a range of 1. 75 to 2 percent. Here’s what else to watch out for.

The Fed will release an updated version of itspostmeeting statementWednesday, and economists are looking for any changes to the language that could provide clues about whether officials are becoming more or less concerned with the economic outlook.

Perhaps more crucially, the Fed’s 17 participants will publish new economic projections at this meeting, giving an updated snapshot of where the group believes growth is headed and whether officials believe the Fed might need to provide additional support.

“The most important question” coming out of this meeting, according to Goldman Sachs economists, “is how many participants will project additional rate cuts. ”

The last set of Fed funds rateprojections– commonly referred to as the “dot plot” because it depicts rate expectations as blue dots on a graph-paper background – showed that as of June, not one policymaker expected more than two rate cuts by the end of 2019.

But risks have mounted since then, putting the Fed under increasing pressure to help keep America’s record-long economic expansion going.

Mr. Trump ramped up his trade war with China immediately after the Fed’srate cut in July.

While China and the United States plan to resume talks next month, a resolution is hardly assured and the global economy continues to wobble. Manufacturing data has been deteriorating globally, job growth in the United States is decent but moderating, Britain’s smooth exit from the European Union is still a question mark and airstrikes on Saudioil facilitiescould heighten geopolitical tensions.

Will it be enough to tip some officials in favor of future rate cuts? Probably, based on their public remarks. James Bullard, the president of the Federal Reserve Bank of St. James Louis, suggestedin a recent interviewwith Reuters that he would favor a half-point rate cut – the equivalent of a third cut, for dot-plot purposes.

But not everyone is expected to agree with even a moderate cut. Esther George and Eric Rosengren, who are also voting members of the rate-setting Federal Open Market Committee, have been less enthusiastic about getting ahead of risks before they turn into economic reality. They dissented against the July rate cut and could do so again at this meeting.

When it comes to the data, things actually look pretty good. At 3.7 percent, unemployment is hovering near a 50 – year low. Overall growth has held up, and consumers are still spending strongly, thoughthe University of Michigan surveysuggests that they are becoming less confident as the trade war spooks many.

Inflation isstill stuckbelow the Fed’s target of 2 percent – as it has almost been pretty regularly since the central bank formally adopted that goal in 2012 – but it has been showing signs of creeping (back up) .

The Fed will release new projections for growth, joblessness and price gains through 2022, and those could offer insight into what officials are expecting. They previously forecast that the unemployment and inflation rates would climb slightly in the coming years while growth moderated.

“Repo” is short for Treasury repurchase agreements, short -term loans taken out overnight by financial institutions like hedge funds and banks. The “standing facility” refers to a regular Fed program that allows banks to convert Treasury securities into reserves – money holdings at the central bank – on demand, at a rate the Fed sets.

In theory, such a tool would keep reserves, which banks sometimes prefer to hold for regulatory reasons, from becoming scarce. That would help money markets function better at times of stress, because banks would be less likely to hoard their reserves. As a result, it would keep the Fed from having to step in to cool things down. The central bankhad to do so twicethis week, a first since the financial crisis.

It is not clear whether the Fed is going to make any big changes at this meeting. Its officials tend to be a contemplative bunch, and they have not foreshadowed a shake-up. But market conditions could drive the institution’s hand, so it is worth watching for moves in that direction.

“I had been skeptical that they were going to introduce a standing repo facility – I think now the probability on that has gone up, ”Said Seth Carpenter, chief United States economist at UBS.

Jeanna Smialek writes about the Federal Reserve and the economy for The New York Times. She previously covered economics at Bloomberg News, where she also wrote feature stories for Businessweek magazine.@jeannasmialek

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