For the first time since 2008, the Federal Open Market Committee cut the federal funds rate, as uncertainties in the domestic and global economies persist.
"Through the course of the year, weak global growth, trade policy uncertainty and muted inflation have prompted the FOMC to adjust its assessment as of the appropriate path of interest rates," Federal Reserve Chairman Jerome Powell said at a press conference Wednesday. "The committee moved from expecting rate increases this year, to a patient stance about any changes, and then to today's action."
The committee lowered the target range for the federal funds rate by 25 basis points to 2% to 2.25% following a two-day meeting that concluded Wednesday. As Mr. Powell noted, its outlook has shifted in recent months. In March, FOMC members reduced the number of projected rate hikes in 2019 to zero from two and projected, on average, that the federal funds rate will stay at 2.4% by the end of 2019 and rise to 2.6% by the end of 2020. In June, they projected, on average, the funds rate will fall to 2.1% by the end of 2020.
Eight members of the committee voted in favor of the cut while two voted to keep the rate unchanged. The committee hiked rates four times in 2018, most recently in December, and held rates steady at its first four meetings of 2019.
"The Fed U-turn has been anything but smooth, but they've finally got it right," said Ron Temple, co-head of multiasset and head of U.S. equity at Lazard Asset Management. "They need to be more concerned about raising inflation than containing it and should focus on realizing the labor market benefits of a 'high-pressure' economy."
Members reiterated that their economic assessments would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and expectations, and readings on financial and international developments, according to a statement.
Mr. Powell said the Fed will act "as appropriate" to sustain the country's economic expansion.
David Norris, head of U.S. credit at TwentyFour Asset Management, said an environment of lower rates and slower growth should remain positive for domestic fixed-income markets. "We should continue to see a robust fixed-income new-issue market as corporate borrowers continue to take advantage of the low rate environment to refinance and improve balance sheet financials," he said. "We will continue to focus on the current earnings season and signs of any relief to the crosswinds to which Powell refers."
The committee's next meeting is Sept. 17-18.