Fed sets bar higher for future cuts
Barring a “material” development, the Federal Reserve rate cut announced today may be its last policy move for some time. The quarter-point reduction, marking its third easing step this year, puts the target range of the federal funds rate at 1.5-1.75%. Chair Jerome Powell said that rates likely will remain anchored in this range so far as economic data remains “broadly consistent.” The statement flagged weak business fixed investment and exports, global developments and still muted inflation as reasons. Eric Rosengren and Esther George again dissented, favoring no move.
Whether the Fed is correct in setting a higher bar for another cut will be evident quite soon, as a lineup of important economic data stand between today’s action and the end of the week. It culminates with Friday’s release of nonfarm employment figures for September and the ISM manufacturing report for October.
Powell also fielded questions about the repo market on the heels of the volatility in September and subsequent aggressive temporary and permanent operations. He emphasized policymakers are focused on bringing the total reserves back up to where they were in early September. Recently, questions have arisen as to the role that financial regulations on some of the largest market participants may have played in the dislocations. Powell essentially said the Fed isn’t sure itself if this caused it, and are actively investigating what happened and how to respond.