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Fed makes third rate cut of 2019, but pause lies ahead

Fed makes third rate cut of 2019, but pause lies ahead

In its seventh meeting of 2019, the Federal Open Market Committee voted to reduce its federal funds rate by a quarter percentage point to between 1.5 and 1.75%. This marks the third rate cut of the year and the third consecutive since the FOMC meeting in July. At that time, the decision to lower rates was made for the first time since December 2008. However, though this rate reduction was expected, the Federal Reserve has adopted much more cautious language that signals a pause ahead.

The Fed's policy-making body voted to lower the federal funds rate by 25 basis points, though two members dissented, saying it should stay at 2%. The federal funds rate is used in overnight lending between banks, but is also tied to trillions in consumer debt. By lowering the rate, the Fed took action to further cushion the U.S. economy against a pessimistic global outlook. While the American economy continues to grow through a record expansion, trade pressures and sputtering international markets have led the Fed to act.

But as the Fed's noted in its statement announcing the rate cut, similar future action is less likely to occur as the central bank takes a step back and consults the data.

Statement uses cautious language

Since the July rate decrease, Fed Chairman Jerome H. Powell has characterized the new approach as a mid-cycle adjustment. He cautioned in his press conferences that the Fed wasn't on a track of consistent rate cuts. That was backed up by a subtle change to the language the FOMC used in announcing its decision. 

In the statements of the previous two rates cuts, the Fed said it would "act as appropriate to sustain the expansion." However, in this latest announcement, members adopted more passive language, saying: "The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate." 

In terms of the current data the Fed sees, the labor market remains strong as job gains are solid and unemployment remains low. Consumer spending has helped pace the economy, despite weak numbers in business investment and exports. Inflation has also stayed well below the Fed's 2% target.

"We believe that monetary policy is in a good place," Powell said in a news conference, according to Reuters. "We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks. We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook."

The Fed decision may seem high level for consumers, but it can have a very real impact on their personal finances. When the Fed rate drops, other interest rates move with it, leading to lower mortgage rates or rates for credit cards. As such, rate cuts are used to stimulate economic activity and borrowing.

If you want to learn more about mortgage or refinance rates, reach out to The Federal Savings Bank today.