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Westlake Legal Group > Interest Rates

Wall Street Is Buzzing About Repo Rates. Here’s Why.

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.

The central bank on Wednesday cut interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. In addition, it took a series of steps to make sure short-term interest rates do what it wants. The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.

This time, there is little reason to worry that an economic catastrophe is in the offing. But the movement highlighted the importance of a market that usually operates in the background.

Repos are short-term loans mainly used by banks and hedge funds in their daily bond trading and brokerage businesses.

These firms typically pay for their investments with borrowed money, and the repo market provides those large sums of money on a daily basis. The money comes from other financial institutions like money market mutual funds that lend it out
for very short periods. A borrower in the repo market could take that cash for a single night, for example, to cover purchases made the day before.

But something went awry this week: The cost of taking out a loan in the repo market shot sharply higher starting on Monday, which caught people off guard.

An Unusual Rise in Interest Rates Roils a Crucial Financial Market

Sept. 16, 2019

Westlake Legal Group merlin_160914108_fa35b117-03c1-4493-9f36-3ef55714bdab-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

Interest rates on overnight loans, which have averaged roughly 2.2 percent since early August, jumped to 2.88 percent on Monday. Then on Tuesday, they rose to as high as 6 percent.

Repo rates are meant to reflect the federal funds rate, and that’s falling as the central bank lowers its interest rate target to bolster the economy.

When there is a lot of money available for the big banks to borrow each night, rates stay low.

But in recent days, a number of factors had drained funds out of the market. Monday was a tax payment deadline for big companies and a holiday in Japan, which meant a large source of funds was shut off. And after a recent auction of government bonds, people had to divert cash to pay for those.

Those were the likely trigger events for this week’s surge. But the amount of money pooled in this market has been declining for a while. And that’s because of the Fed.

Since 2018, the Fed has been shrinking its holdings of bonds and reversing its crisis-era policy of pushing money into the financial system.

The change has effectively reduced the supply of money available in the short-term lending markets. The surge in short-term rates suggests that the Fed might have removed a bit too much, making reserves too scarce.

“The problem is, we don’t know what that minimum level is and we just smacked right into it,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities USA.

The repurchase market is just one of the short-term money markets where short-term cash and bank reserves are channeled to borrowers, and rate increases in one can influence others.

In the market for commercial paper — unsecured loans to banks and other large corporations — rates for overnight borrowing also surged.

The good news is, a brief increase in short-term interest rates will probably not mean much to the broader economy.

It could briefly raise the cost of trading at financial firms, hurting their profits. And if it persists, it could undermine the belief of those in the financial markets that the Federal Reserve can effectively apply monetary policy as it intends.

The main reason that the surge in the repo market has received attention is because it reminds people of the last time the market went haywire.

In August 2007, the repo markets suddenly tightened, in what turned out to be one of the earliest indications that there were deep problems in the financial system.

Then, the problems in the market were centered around the market for mortgage-backed securities, which were often labeled AAA, and were used by borrowers as collateral in the repurchase markets.

As investors began to become aware of the deep troubles of the American mortgage market, they began to avoid lending against mortgage collateral. Repo rates surged, reflecting the realization of increased credit risk in these kinds of bonds that were often built out of poorly made home loans.

Fed Jumps Into Market to Push Down Rates, a First Since the Financial Crisis

Sept. 17, 2019

Westlake Legal Group merlin_158555928_5e08d9c6-382d-4306-bf98-9bcab8a935cf-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

The surge in repo rates does not mean that investors now think Treasury bonds are risky. If that were the case, interest rates in the bond market would be higher. In fact, they’re quite low. The yield on the 10-year note was roughly 1.8 percent on Wednesday.

“While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,” the Fed chair, Jerome H. Powell, said a news conference on Wednesday.

Basically, the story of the repo market this week is essentially a hiccup for the technocrats at the central bank, leaving the markets without enough cash to go around.

That’s not great to see, but there is no reason to think this is the leading indicator of another financial crisis.

Jeanna Smialek contributed reporting.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Wall Street Is Buzzing About Repo Rates. Here’s Why.

Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how.

But a surprisingly lively couple of days in short-term money markets has meant that the “how” became nearly as important as the “why.”

The stress started on Monday in the market for repurchase agreements, or repos. The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds.

Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains.

The central bank on Wednesday cut interest rates by a quarter percentage point as part of its effort to ensure that the economic expansion continues. In addition, it took a series of steps to make sure short-term interest rates do what it wants. The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it.

In the past, when the repo markets managed to make headlines, it was in exceptional episodes of market stress — for instance, in the early days of the financial crisis.

This time, there is little reason to worry that an economic catastrophe is in the offing. But the movement highlighted the importance of a market that usually operates in the background.

Repos are short-term loans mainly used by banks and hedge funds in their daily bond trading and brokerage businesses.

These firms typically pay for their investments with borrowed money, and the repo market provides those large sums of money on a daily basis. The money comes from other financial institutions like money market mutual funds that lend it out
for very short periods. A borrower in the repo market could take that cash for a single night, for example, to cover purchases made the day before.

But something went awry this week: The cost of taking out a loan in the repo market shot sharply higher starting on Monday, which caught people off guard.

An Unusual Rise in Interest Rates Roils a Crucial Financial Market

Sept. 16, 2019

Westlake Legal Group merlin_160914108_fa35b117-03c1-4493-9f36-3ef55714bdab-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

Interest rates on overnight loans, which have averaged roughly 2.2 percent since early August, jumped to 2.88 percent on Monday. Then on Tuesday, they rose to as high as 6 percent.

Repo rates are meant to reflect the federal funds rate, and that’s falling as the central bank lowers its interest rate target to bolster the economy.

When there is a lot of money available for the big banks to borrow each night, rates stay low.

But in recent days, a number of factors had drained funds out of the market. Monday was a tax payment deadline for big companies and a holiday in Japan, which meant a large source of funds was shut off. And after a recent auction of government bonds, people had to divert cash to pay for those.

Those were the likely trigger events for this week’s surge. But the amount of money pooled in this market has been declining for a while. And that’s because of the Fed.

Since 2018, the Fed has been shrinking its holdings of bonds and reversing its crisis-era policy of pushing money into the financial system.

The change has effectively reduced the supply of money available in the short-term lending markets. The surge in short-term rates suggests that the Fed might have removed a bit too much, making reserves too scarce.

“The problem is, we don’t know what that minimum level is and we just smacked right into it,” said Gennadiy Goldberg, senior U.S. rates strategist at TD Securities USA.

The repurchase market is just one of the short-term money markets where short-term cash and bank reserves are channeled to borrowers, and rate increases in one can influence others.

In the market for commercial paper — unsecured loans to banks and other large corporations — rates for overnight borrowing also surged.

The good news is, a brief increase in short-term interest rates will probably not mean much to the broader economy.

It could briefly raise the cost of trading at financial firms, hurting their profits. And if it persists, it could undermine the belief of those in the financial markets that the Federal Reserve can effectively apply monetary policy as it intends.

The main reason that the surge in the repo market has received attention is because it reminds people of the last time the market went haywire.

In August 2007, the repo markets suddenly tightened, in what turned out to be one of the earliest indications that there were deep problems in the financial system.

Then, the problems in the market were centered around the market for mortgage-backed securities, which were often labeled AAA, and were used by borrowers as collateral in the repurchase markets.

As investors began to become aware of the deep troubles of the American mortgage market, they began to avoid lending against mortgage collateral. Repo rates surged, reflecting the realization of increased credit risk in these kinds of bonds that were often built out of poorly made home loans.

Fed Jumps Into Market to Push Down Rates, a First Since the Financial Crisis

Sept. 17, 2019

Westlake Legal Group merlin_158555928_5e08d9c6-382d-4306-bf98-9bcab8a935cf-threeByTwoSmallAt2X Wall Street Is Buzzing About Repo Rates. Here’s Why. United States Economy Money Market Mutual Funds Interest Rates Federal Reserve System Credit and Debt Banking and Financial Institutions

The surge in repo rates does not mean that investors now think Treasury bonds are risky. If that were the case, interest rates in the bond market would be higher. In fact, they’re quite low. The yield on the 10-year note was roughly 1.8 percent on Wednesday.

“While these issues are important for market functioning and market participants, they have no implications for the economy or the stance of monetary policy,” the Fed chair, Jerome H. Powell, said a news conference on Wednesday.

Basically, the story of the repo market this week is essentially a hiccup for the technocrats at the central bank, leaving the markets without enough cash to go around.

That’s not great to see, but there is no reason to think this is the leading indicator of another financial crisis.

Jeanna Smialek contributed reporting.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

Westlake Legal Group fed-second-rate-cut-promo-1568827337935-articleLarge-v2 Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

Westlake Legal Group fed-second-rate-cut-promo-1568827337935-articleLarge-v2 Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

Westlake Legal Group fed-second-rate-cut-promo-1568827337935-articleLarge-v2 Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Fed Cuts Interest Rates by Another Quarter Point

WASHINGTON — The Federal Reserve cut interest rates by a quarter of a percentage point on Wednesday, its second cut since late July, and suggested it was prepared to move aggressively if the United States economy shows additional signs of weakening.

For now, a growing number of Fed officials expect just one more cut this year, based on economic projections released following the meeting, in line with investor and economist expectations.

Fed Chair Jerome H. Powell, speaking at a news conference said that the United States economy remains strong and unemployment is low but that “there are risks to this positive outlook.” If the economy weakens, a “more extensive” series of rate cuts would be appropriate, he said.

“Our eyes are open, we’re watching the situation,” Mr. Powell said, explaining that the Fed will stop cutting rates to sustain the expansion “when we think we’ve done enough.”

“There may come a time when the economy weakens and we would have to cut more aggressively,” he said. “We don’t know.”

The Fed’s announcement on Wednesday did little to appease President Trump, who has been pushing the central bank to cut interest rates to zero — or even into negative territory. The Fed’s policy interest rate is now set in a range of 1.75 to 2 percent, and not a single official sees it falling lower than 1.5 to 1.75 percent through the end of 2022.

“Jay Powell and the Federal Reserve Fail Again,” Mr. Trump said in a tweet shortly after the Fed’s announcement. “No ‘guts,’ no sense, no vision! A terrible communicator!”

Stocks, which were down slightly before the announcement, fell further afterward. Shortly before 2:30 p.m., the S&P 500 index was down 0.7 percent and the Nasdaq was down 1 percent. The yield on the 10-year Treasury note was down on the day, at roughly 1.77 percent.

The Fed’s decision-making has been complicated by mixed economic signals. While risks cloud the horizon, economic data remain solid, creating a complicated backdrop. Businesses are hiring and consumers are spending, but Mr. Trump’s trade war and prospects of an unruly British withdrawal from the European Union have markets on edge. Inflation has been stuck below the Fed’s 2 percent target, giving officials room to lower rates without worrying about runaway price gains.

Mr. Powell said the decision to cut rates stemmed from a need to guard against “some notable developments” and “ongoing risks.” Mr. Powell said trade uncertainty and geopolitical tensions necessitated action.

ImageWestlake Legal Group merlin_160978143_aba2961c-c178-480b-bd1b-169e1261c53a-articleLarge Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

The Fed’s decision to cut rates was not unanimous. Three officials dissented, with two objecting to a cut and one pushing for an even bigger cut.CreditT.J. Kirkpatrick for The New York Times

“Since the middle of last year, the global growth outlook has weakened,” Mr. Powell said. “Trade policy tensions have waxed and waned,” and “elevated uncertainty” is weighing on business investment and exports, he said.

In its official statement after its meeting, the Fed said policymakers “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

While the median Fed official expects rates to stay at the current level through the end of the year, seven of 17 expect another rate cut. Not a single official expected three rate cuts in 2019 when the central bank last released economic projections in June, suggesting that momentum is shifting toward additional accommodation.

Mr. Powell addressed that shift, saying the change in the Fed’s policy stance over the course of the year is “the main takeaway.”

But officials are increasingly divided over what happens next. Three members of the rate-setting Federal Open Market Committee dissented in this month’s vote. James Bullard, the president of the Federal Reserve Bank of St. Louis, wanted a more drastic half-point rate cut and voted against moving by just a quarter point. Esther George, who heads the Federal Reserve Bank of Kansas, and Eric Rosengren, who heads the Federal Reserve Bank of Boston, thought that the central bank should keep borrowing costs steady. Ms. George and Mr. Rosengren also voted against the July rate cut.

Mr. Powell acknowledged the divisions, calling it “a time of difficult judgments” but saying he welcomed “diverse perspectives.”

He added that the bulk of the committee is going “meeting by meeting.”

The dissents underscore the economic and political challenges facing the Fed.

While the Fed operates independently of the White House and answers to Congress, Mr. Trump has made a regular habit of criticizing Mr. Powell and his colleagues.

“The Federal Reserve should get our interest rates down to ZERO, or less,” Mr. Trump tweeted on Sept. 11. “It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing.”

Officials regularly say they set policy with an eye to the longer-term economic outlook, not short-term political concerns, but Mr. Trump’s onslaught creates an optics problem for the Fed. Some share of the population could see rate cuts, like Wednesday’s, as a sign that the central bank is caving to political pressure, particularly given that it was not a unanimous decision.

But there is an economic rationale for lowering rates sooner rather than later, since doing so could keep credit flowing, helping to keep consumer and business spending as uncertainty climbs.

Westlake Legal Group fed-second-rate-cut-promo-1568827337935-articleLarge-v2 Fed Cuts Interest Rates by Another Quarter Point United States Politics and Government United States Economy Trump, Donald J Recession and Depression Powell, Jerome H Labor and Jobs Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Why the Fed Lowered Interest Rates Again

The Federal Reserve lowered interest rates for the second time this year, as it tries to guard the United States economy against trade-related uncertainty and slowing global growth.

The University of Michigan consumer sentiment index has drifted lower recently on the back of trade concerns, and jitters about the United States economy were also reflected in the Business Roundtable’s C.E.O. Economic Outlook Index, which declined to a three-year low in the third quarter.

Chief executives of the nation’s largest corporations have sharply lowered their plans for capital investment and their expectations for sales. Trade tensions were cited as a major factor for the worry that companies are feeling.

At the same time, employers are still hiring, wages are gradually rising and Americans in their prime have been coming back into the labor force. As households take home better paychecks, their spending is holding up, fueling strong retail sales. Even the housing market, which has struggled this year, shows signs of firming.

But global risks abound. Germany seems to be teetering on the brink of recession. Britain’s exit from the European Union remains fraught, and the United States’ trade war with China is dragging on.

Mr. Trump has placed tariffs on $360 billion worth of Chinese goods and plans to impose levies on nearly all Chinese imports by the end of the year. While the two nations are back at the negotiating table, it is unclear whether and when a deal could be reached.

The Fed has also struggled to coax inflation up to its 2 percent goal. The central bank aims for steady inflation that is low enough to allow for consumer comfort but high enough to leave policymakers extra headroom to cut interest rates, which include price gains, during a downturn.

Inflation came in at 1.6 percent in July, based on the Fed’s preferred gauge, and has been mired below its target for years. Inflation expectations, as measured by one New York Fed survey, have slipped both in the short- and the longer-term.

The Fed also lowered the rate of interest it pays on reserves — money commercial banks park at the central bank — to 1.8 percent, 0.2 percentage point below the top of the Fed’s preferred range. That technical tweak is meant to keep the Fed funds rate, which has been creeping up, anchored within its range.

It also directed the Federal Reserve Bank of New York’s trading desk to execute open market transactions as necessary and “until instructed otherwise,” to keep short-term lending rates from rising above the Fed’s target.

The move came after several days of wild activity in an important corner of financial markets.

The overnight rate on Treasury repurchase agreements, which are short-term loans used by financial institutions like hedge funds and banks, surged at the start of the week amid a shortage of dollars. A few technical factors seemed to contribute to the spike — including a corporate tax date, recent government bond issuance that sopped up cash and the aftereffects of the Fed’s shrinking of its balance sheet.

The jump pushed up the Fed’s key policy tool, the Fed funds rate, and forced the Federal Reserve Bank of New York to spring into action to keep it in line, a first since 2008.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

The Fed Is Poised to Cut Rates Again. Here’s What to Watch.

Westlake Legal Group 18dc-fedpreview2-facebookJumbo The Fed Is Poised to Cut Rates Again. Here’s What to Watch. United States Politics and Government United States Economy Powell, Jerome H Interest Rates Federal Reserve System Federal Open Market Committee Banking and Financial Institutions

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.

The Fed’s rate decision, which will be announced at 2 p.m. in Washington, will be accompanied by a fresh set of quarterly economic projections and followed by a news conference at 2:30 p.m. 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 to protect the economy against 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 rates at 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 its postmeeting statement Wednesday, 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 rate projections — 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’s rate 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 Saudi oil facilities could 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. Louis, suggested in a recent interview with 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, though the University of Michigan survey suggests that they are becoming less confident as the trade war spooks many.

Inflation is still stuck below 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.

Perhaps the biggest wild card at this meeting is Mr. Powell’s news conference. The Fed chair roiled markets after the July meeting because investors interpreted his statement that the Fed’s rate cut was a “mid-cycle adjustment” as a sign that the central bank did not plan to aggressively cut borrowing costs.

Mr. Powell has little to gain by making definitive promises: Trade policies are one of the major risks on the horizon, and they have the potential to change quickly. The Fed could face very different conditions by its Oct. 29-30 meeting, which comes after United States and Chinese officials are scheduled to meet.

“We think Powell will steer clear from the phrase mid-cycle adjustment that caused waves in July, favoring instead an open-minded recalibration of rates,” economists at Evercore ISI wrote in a research note previewing the meeting.

Whatever Mr. Powell says seems likely to draw a reaction from the White House. While Mr. Trump has no ability to directly influence Fed policy — the central bank is insulated from politics and answers to Congress, not the White House — he has made a habit of weighing in on its decisions.

Mr. Trump has ramped up his attacks on Twitter in recent months, figuratively calling Mr. Powell a bad golfer, labeling him an enemy and saying that he and his colleagues are “boneheads.” He has even suggested that the Fed should adopt negative rates, a policy intact in the eurozone and Japan, which have very low inflation and more fragile economies.

You might also hear the phrase “standing repo facility” bandied about around 2 p.m.

A little background: There has been some turmoil in the money markets this week as a corporate tax due date and Treasury bond issuance combined to fuel a cash shortage. That creates problems for the Fed — it makes it harder for it to keep its policy rate under control, and risks tightening financial conditions in ways that slow down borrowing and spending.

As a result, some economists believe the Fed will discuss ways to keep those markets chugging along smoothly — while also steadying the Fed funds rate — at their meeting. Analysts think options might include a technical tweak to the Fed’s rate-setting tool, a resumption of bond-buying that will keep the Fed’s balance sheet growing alongside the economy to guard against future cash crunches in money markets, and a standing repo facility.

“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 bank had to do so twice this 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.

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Trump Urges ‘Big’ Rate Cut as Fed Faces Challenges

WASHINGTON — The Federal Reserve is poised to cut interest rates for the second time this year on Wednesday as policymakers try to get ahead of economic risks emanating from a global slowdown, President Trump’s trade war and uncertainty about the road ahead.

The central bank’s leadership is under immense political pressure from Mr. Trump, who denounces its reluctance to slash rates more aggressively on Twitter almost daily.

“Will Fed ever get into the game? Dollar strongest EVER!” Mr. Trump said in a tweet on Monday. “Big Interest Rate Drop, Stimulus!”

The Fed, which operates independently of the White House, is expected to cut rates just slightly this week, to a range between 1.75 and 2 percent, in a bid to insulate economic growth as threats to the outlook mount. That remains far above Mr. Trump’s previously stated desire for zero or negative interest rates.

Yet even a modest cut could prove contentious as Fed officials wrestle with mixed economic signals and try to gauge whether Mr. Trump’s sometimes-hot, sometimes-cold trade war is creating economic uncertainty that can and should be offset by central bank action.

Two members of the policy-setting Federal Open Market Committee voted against the Fed’s July rate cut — its first cut in more than a decade — and may dissent against any further reduction at this meeting, given that the economy is growing and unemployment remains near a 50-year low. Another committee member has voiced support for a larger-than-expected move in the face of global risks.

That discord could make it more difficult for Jerome H. Powell, the Fed chair, to clearly communicate what comes next at a time when the economic outlook itself is particularly hazy.

Although many investors expect another cut in October and will hang on Mr. Powell’s every word for any hint at timing, Mr. Powell will probably try to keep the Fed’s options open. He has so far avoided committing the Fed to movement, saying only that it will do what is needed to sustain the economic expansion.

The big question facing the Fed is whether the expansion will need additional support from the central bank.

ImageWestlake Legal Group 16dc-fedpreview2-articleLarge Trump Urges ‘Big’ Rate Cut as Fed Faces Challenges United States Politics and Government United States Economy Recession and Depression Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Jerome H. Powell, the Federal Reserve chair, is under immense political pressure from President Trump, even though the Fed operates independently of the White House.CreditArnd Wiegmann/Reuters

Inflation has shown signs of moving back toward the Fed’s 2 percent goal, and consumer spending, the job market and overall growth have remained resilient so far. But Mr. Trump’s trade war is denting business investment and exacerbating a manufacturing slowdown, and it is unclear how — or whether — it will be resolved. The United States and China are expected to meet again next month, and both sides have taken steps before that meeting to ease their trade fight. But a deal is not guaranteed, and Mr. Trump plans to impose tariffs on nearly all Chinese imports by the end of the year if one is not reached.

Adding to the mixed economic picture: Household confidence is wobbling, and the global economic picture is tenuous. Germany, Europe’s largest economy, is on the brink of recession, and Britain is grappling with its contentious exit from the European Union.

“The consumer is doing well, but there are other parts of the economy that aren’t doing well: manufacturing being the obvious one, but business investment is weak, and foreign demand is weak,” said Michael Feroli, the chief United States economist at J. P. Morgan, who expects policymakers to cut rates one more time this year. “I don’t necessarily think they have a plan to go again, but I think the economy will continue to look a little soft.”

A strike on a Saudi Arabian oil facility over the weekend could further complicate the picture. It will at least temporarily disrupt oil supplies and affect prices, though many experts say a severe shock to consumers is unlikely. Still, it opens the door to intensified geopolitical tension.

Heightening Mr. Powell’s communications challenge, the Fed will release new economic projections after the meeting for the first time since June. That means the Fed chair will have to knit his 16 colleagues’ interest rate projections into one comprehensive narrative.

While the Fed is closely monitoring short-term risks, its long-term challenges may be even more daunting. Interest rates will stand below 2 percent if the central bank lowers them this week, leaving policymakers with limited room to cut come the next recession. For context, they lowered rates by more than five percentage points in reaction to the 2007 to 2009 downturn.

“The Fed simply doesn’t have enough firefighting capability at its disposal to fight even an average next recession, let alone a financial crisis — anything that history would later label a Great Recession,” said David Wilcox, who directed research and statistics at the Fed until last year and is now a senior fellow at the Peterson Institute for International Economics. “We run the risk that the next recession will therefore be that much deeper, that much more prolonged — because the Fed won’t be in a good position to arrest downward momentum once it begins.”

Fed officials often say that they have tools left to bolster the economy. Still, they plan to discuss options for conducting monetary policy amid lower interest rates at their upcoming meetings. The conversations so far seems to center on keeping inflation from getting stuck in low gear.

The Fed aims for 2 percent annual price increases, but has not hit that target sustainably since formally adopting it in 2012. That matters in part because inflation gives the central bank headroom to cut interest rates, which do not strip out price gains. Lower inflation makes for even less room to maneuver.

One short-term fix, supported in a recent editorial by Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, is to promise to keep rates low until inflation moves back to, or even just above, the central bank’s 2 percent goal. In theory, such a commitment would prove the Fed’s seriousness and help to keep consumers’ and investors’ inflation expectations, which have been slipping, from sinking lower. It could provide extra stimulus by making investors expect low rates for longer.

President Mario Draghi, right, of the European Central Bank said Europe’s central bankers are unanimous on one point: Elected officials who make tax and spending decisions need to do better.CreditMartti Kainulainen/Agence France-Presse — Getty Images

President Mario Draghi of the European Central Bank, which is also facing stubbornly low inflation, made a softened version of that commitment last week.

At the Fed, other ideas up for discussion include aiming for 2 percent inflation on average over a period of time or targeting a price level, rather than a rate of change. Either plan would probably leave interest rates lower for longer after recessions as officials tried to make up for inflation shortfalls.

Some central bank watchers worry that tweaks to the framework could prove inadequate to restock the monetary arsenal, especially because Mr. Powell and his vice chair, Richard H. Clarida, often characterize the rethinking as “evolution, not revolution.”

“I hope that the Fed leadership will not feel constrained from adopting a new inflation control framework, merely because they have said that they’ll be evolutionary,” said Mr. Wilcox, who favors a higher inflation target. He said he also hoped for “an acknowledgment” that “there is a serious risk that our tools will not be adequate for fighting the next recession.”

“They need to give Congress the opportunity to pre-position a fiscal response to the next recession,” Mr. Wilcox said, indicating that the Fed should be transparent about its lack of monetary policy options so lawmakers can start to think of solutions.

The Fed does have more wiggle room than its counterparts in Europe, Japan and the United Kingdom, which have very low or even negative interest rates.

If the global economy tips into outright recession, “the Fed has monetary policy room to address all of that,” Mark Carney, the head of the Bank of England, said in New York last week. “The Bank of England, with various tools, is close, but not all the way there, and the E.C.B. is farther away.”

Mr. Draghi said Europe’s central bankers are unanimous on one point: Fiscal policymakers, the elected officials who make tax and spending decisions, need to step up their game.

But the Fed’s comparatively better position is hardly a bright side, because the American economy could feel the fallout if major global trading partners struggle to combat domestic slowdowns.

“We are carefully watching developments as we assess their implications for the U.S. outlook and the path of monetary policy,” Mr. Powell said last month, noting that “further evidence of a global slowdown” ranked among those risks.

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The Fed Faces a Tough End to 2019 as Worries Cloud the Horizon

WASHINGTON — The Federal Reserve is poised to cut interest rates for a second time on Wednesday as policymakers try to get ahead of economic risks emanating from a global slowdown, President Trump’s trade war and uncertainty about the road ahead.

Investors largely expect a rate cut, but the decision could be contentious as Fed officials wrestle with mixed economic signals and try to gauge whether Mr. Trump’s sometimes-hot, sometimes-cold trade war is creating economic uncertainty that can and should be offset by central bank action.

Two members of the policy-setting Federal Open Market Committee voted against the Fed’s July rate cut — its first cut in more than a decade — and may dissent against any further reduction at this meeting, given that the economy is growing and unemployment remains near a 50-year low. Another committee member has voiced support for a larger-than-expected cut in the face of global risks.

That discord could make it more difficult for Jerome H. Powell, the Fed chair, to clearly communicate what comes next. The central bank leadership is already under immense political pressure from Mr. Trump, who denounces its reluctance to slash rates more aggressively on Twitter almost daily. The Fed is expected to cut rates just slightly to a range between 1.75 and 2 percent — far above Mr. Trump’s stated desire for zero or negative interest rates.

The Fed operates independently of the White House, and officials say they are cutting rates because uncertainty is mounting and inflation is running below the Fed’s goal. But consumer spending and the job market remain strong, putting the onus on Mr. Powell to explain why the Fed is acting now and whether it plans further moves.

Many investors expect another cut in October and will hang on Mr. Powell’s every word for any hint at timing. But Mr. Powell will probably try to keep the Fed’s options open. He has so far avoided committing the Fed to movement, saying only that it will do what is needed to sustain the economic expansion.

The big question facing the Fed is whether the expansion will need additional support from the central bank.

Inflation has shown signs of moving back toward the Fed’s 2 percent goal, and growth has remained resilient so far. But it is unclear how — or whether — Mr. Trump’s trade war will be resolved. The United States and China are expected to meet again next month, and both sides have taken steps before that meeting to ease their trade fight. But a deal is not guaranteed, and Mr. Trump plans to impose tariffs on nearly all Chinese imports by the end of the year if one is not reached.

ImageWestlake Legal Group 16dc-fedpreview2-articleLarge The Fed Faces a Tough End to 2019 as Worries Cloud the Horizon United States Politics and Government United States Economy Recession and Depression Interest Rates Inflation (Economics) Federal Reserve System Federal Open Market Committee

Jerome H. Powell, the Federal Reserve chair, is under immense political pressure from President Trump, even though the Fed operates independently of the White House.CreditArnd Wiegmann/Reuters

Adding to the mixed economic picture: Household confidence is wobbling, and the global economic picture is tenuous. Germany, Europe’s largest economy, is on the brink of recession, and Britain is grappling with its contentious exit from the European Union.

“The consumer is doing well, but there are other parts of the economy that aren’t doing well: manufacturing being the obvious one, but business investment is weak, and foreign demand is weak,” said Michael Feroli, the chief United States economist at J. P. Morgan, who expects policymakers to cut rates one more time this year. “I don’t necessarily think they have a plan to go again, but I think the economy will continue to look a little soft.”

Heightening Mr. Powell’s communications challenge, the Fed will release new economic projections after the meeting for the first time since June. That means the Fed chair will have to knit his 16 colleagues’ interest rate projections into one comprehensive narrative.

While the Fed is closely monitoring short-term risks, its long-term challenges may be even more daunting. Interest rates will stand below 2 percent if the central bank lowers them this week, leaving policymakers with limited room to cut come the next recession. For context, they lowered rates by more than five percentage points in reaction to the 2007 to 2009 downturn.

“The Fed simply doesn’t have enough firefighting capability at its disposal to fight even an average next recession, let alone a financial crisis — anything that history would later label a Great Recession,” said David Wilcox, who directed research and statistics at the Fed until last year and is now a senior fellow at the Peterson Institute for International Economics. “We run the risk that the next recession will therefore be that much deeper, that much more prolonged — because the Fed won’t be in a good position to arrest downward momentum once it begins.”

Fed officials often say that they have tools left to bolster the economy. Still, they plan to discuss options for conducting monetary policy amid lower interest rates at their upcoming meetings. The conversations so far seems to center on keeping inflation from getting stuck in low gear.

The Fed aims for 2 percent annual price increases, but has not hit that target sustainably since formally adopting it in 2012. That matters in part because inflation gives the central bank headroom to cut interest rates, which do not strip out price gains. Lower inflation makes for even less room to maneuver.

One short-term fix, supported in a recent editorial by Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, is to promise to keep rates low until inflation moves back to, or even just above, the central bank’s 2 percent goal. In theory, such a commitment would prove the Fed’s seriousness and help to keep consumers’ and investors’ inflation expectations, which have been slipping, from sinking lower. It could provide extra stimulus by making investors expect low rates for longer.

President Mario Draghi of the European Central Bank, which is also facing stubbornly low inflation, made a softened version of that commitment last week.

President Mario Draghi, right, of the European Central Bank said Europe’s central bankers are unanimous on one point: Elected officials who make tax and spending decisions need to do better.CreditMartti Kainulainen/Agence France-Presse — Getty Images

At the Fed, other ideas up for discussion include aiming for 2 percent inflation on average over a period of time or targeting a price level, rather than a rate of change. Either plan would probably leave interest rates lower for longer after recessions as officials tried to make up for inflation shortfalls.

Some central bank watchers worry that tweaks to the framework could prove inadequate to restock the monetary arsenal, especially because Mr. Powell and his vice chair, Richard H. Clarida, often characterize the rethinking as “evolution, not revolution.”

“I hope that the Fed leadership will not feel constrained from adopting a new inflation control framework, merely because they have said that they’ll be evolutionary,” said Mr. Wilcox, who favors a higher inflation target. He said he also hoped for “an acknowledgment” that “there is a serious risk that our tools will not be adequate for fighting the next recession.”

“They need to give Congress the opportunity to pre-position a fiscal response to the next recession,” Mr. Wilcox said, indicating that the Fed should be transparent about its lack of monetary policy options so lawmakers can start to think of solutions.

The Fed does have more wiggle room than its counterparts in Europe, Japan and the United Kingdom, which have very low or even negative interest rates.

If the global economy tips into outright recession, “the Fed has monetary policy room to address all of that,” Mark Carney, the head of the Bank of England, said in New York last week. “The Bank of England, with various tools, is close, but not all the way there, and the E.C.B. is farther away.”

Mr. Draghi said Europe’s central bankers are unanimous on one point: Fiscal policymakers, the elected officials who make tax and spending decisions, need to step up their game.

But the Fed’s comparatively better position is hardly a bright side, because the American economy could feel the fallout if major global trading partners struggle to combat domestic slowdowns.

“We are carefully watching developments as we assess their implications for the U.S. outlook and the path of monetary policy,” Mr. Powell said last month, noting that “further evidence of a global slowdown” ranked among those risks.

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E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat

FRANKFURT — The European Central Bank took unexpectedly aggressive steps on Thursday to head off a downturn before it gained momentum, but the bank signaled that it was reaching the limits of what it could do to stimulate the eurozone economy.

The central bank cut a key interest rate and revived a money-printing program, but later issued an unusually strong call for eurozone governments to do more of the economic heavy lifting.

Those countries that can afford it should stimulate growth by increasing public spending, Mario Draghi, the central bank president, said during a news conference.

Asked whether the message to political leaders was that they can’t expect the central bank to come to their rescue forever, Mr. Draghi answered: “Definitely yes.”

Mr. Draghi’s call for government action, which he said had the unanimous support of the bank’s 25-member Governing Council, was also an expression of unity with his soon-to-be-successor, Christine Lagarde. Ms. Lagarde, who will become the European Central Bank’s president in November, issued a similar plea when she spoke to members of the European Parliament last week.

For much of the last decade, the European Central Bank has prevented the eurozone economy from collapsing with an array of sometimes unprecedented crisis measures. But economic growth has almost stalled, and there is a growing consensus among analysts that wealthier countries like Germany or the Netherlands need to pump money into their economies, and by extension the rest of the eurozone, with tax cuts or public works projects.

Central banks are “not the only game in town,” Ms. Lagarde said at the European Parliament last week.

Read more: Central banks around the world are cutting rates to fend off recession.

The measures that the European Central Bank announced Thursday go beyond what many analysts were expecting. Recent comments by members of the Governing Council had cast doubt on whether the bank would restart purchases of government and corporate bonds. It has been only nine months since the bank ended a previous bond-buying program, an initiative that started in the midst of the financial crisis.

The bank will buy 20 billion euros’ worth of bonds, or $22 billion, every month starting in November, a form of money printing intended to inject money into the system and hold down interest rates.

In a bid to increase lending, the bank also pushed even lower the so-called negative interest rate it imposes on commercial banks that hoard cash.

In normal times, banks earn interest when they deposit money in central banks. But since 2014, the European Central Bank has imposed a negative rate — essentially, a charge — on such deposits to pressure commercial banks to lend more. On Thursday, the central bank changed this deposit rate to minus 0.5 percent from minus 0.4 percent. It was the first cut in interest rates since 2016.

The deposit rate is one of the few remaining levers the bank can use to push down market interest rates. Its benchmark interest rate, the rate at which it lends to banks, is already at zero and cannot go any lower.

The move was symptomatic of the upside-down world of modern finance, in which interest rates are so low that insurance companies and other investors must pay governments and even some corporations to keep their money safe.

The central bank acknowledged Thursday that negative interest rates have some unwanted side effects and took steps to ease the pain. Some bank holdings will be exempt from the penalty, a practice known as tiering.

Despite Mr. Draghi’s plea for governments to do more, the idea of debt-financed spending, even on such favorable terms, is politically touchy in Germany. Germans are proud of their balanced budgets, and a constitutional amendment effectively forbids deficit spending.

ImageWestlake Legal Group merlin_160661526_6442e930-0759-41b6-83cb-6ca02a20d88d-articleLarge E.C.B. Acts to Head Off Recession Threat in Europe, With a Caveat Recession and Depression Quantitative Easing Interest Rates Inflation (Economics) Government Bonds Eurozone European Central Bank Europe Draghi, Mario Banking and Financial Institutions

Mario Draghi, the European Central Bank president, at a news conference after the meeting of the Governing Council in Frankfurt on Thursday.CreditRalph Orlowski/Reuters

With Germany on the brink of recession, weighed down by slumping exports caused by the United States-China trade war, some domestic leaders have begun to question that orthodoxy. “We should think about whether a break-even budget is the right path,” Wolfgang Tiefensee, economics minister of the state of Thuringia, said in an interview last month.

“We should use increased tax receipts to invest in infrastructure — bridges, streets, railways, broadband,” he said, “everywhere there is an urgent need to catch up.”

“Many people share this view,” Mr. Tiefensee added, “but not yet a majority.”

The European Central Bank also exceeded expectations by making an open-ended commitment to keep interest rates low, and sweetening a program that encourages banks to lend money to consumers and businesses.

The bank said it would not begin raising interest rates “until it has seen the inflation outlook robustly converge to a level” below but close to 2 percent, the official target. The annual rate of inflation in August was only half that much. The open-ended commitment was in contrast to previous statements when the bank outlined a specific time frame.

Further, the bank said it would ease the terms of a program that allows banks to borrow money on favorable terms, provided they lend it to customers. The loans will be extended to three years from two, and for banks that meet certain benchmarks the interest rate will be negative. In other words, banks won’t pay any interest and won’t have to repay all of the money they borrowed.

President Trump, who has been pressing the Federal Reserve to cut its benchmark rate, responded to Thursday’s move by needling his own central bank. The European bank, he said, is “trying, and succeeding, in depreciating the Euro against the VERY strong dollar, hurting U.S. exports … And the Fed sits, and sits, and sits.”

President Trump wants negative interest rates. Here’s how that would work.

The euro slipped against the dollar on Thursday, but Mr. Draghi rejected the idea that currency manipulation was behind the bank’s action.

“We have a mandate, we pursue price stability, and we don’t target exchange rates, period,” he said.

Some prominent economists say that it’s time for the European Central Bank to get more creative. The bank’s balance sheet already includes €2.6 trillion, or about $2.9 trillion, in government and corporate bonds. They were bought with newly created euros to inject money into the financial system and push down interest rates.

Analysts say that the bank has limited scope to buy more government bonds because it already owns such a big chunk of the market.

“As I see it, he has only about €60 billion of sovereigns he can buy,” Carl Weinberg, chief international economist at High Frequency Economics in White Plains, N.Y., said in an email. “That does not support sovereign bond purchases lasting for very long.”

Some economists have begun urging the bank to consider printing money and distributing it directly to citizens.

Among them is Stanley Fischer, former vice chairman of the Fed and Mr. Draghi’s thesis adviser when he was a doctoral student at M.I.T. Mr. Fischer was among the authors of a report published last month by the fund manager BlackRock.

“An unprecedented response is needed when monetary policy is exhausted and fiscal policy alone is not enough,” the report said.

“That response will likely involve ‘going direct,’” the report said. “Going direct means the central bank finding ways to get central bank money directly in the hands of public and private sector spenders.”

The eurozone economy probably needs to get a lot worse before the central bank would consider such an idea, which would be highly contentious. “Giving money to people in whatever form, it’s a fiscal policy task,” Mr. Draghi said Thursday. “It’s not a monetary policy task.”

He added, though, that Ms. Lagarde might reconsider the issue.

Mr. Draghi will preside over one more monetary policy meeting, on Oct. 24, before handing power to Ms. Lagarde.

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