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The Fed Just Made a Major Reversal

Cuts key interest rate by a quarter-point
By Kate Seamons,  Newser Staff
Posted Jul 31, 2019 5:33 AM CDT
Updated Jul 31, 2019 1:22 PM CDT

(Newser) – As expected, the Federal Reserve on Wednesday cut its key interest rate for the first time since December 2008. The benchmark short-term rate was lowered by a quarter-point to a range of 2% to 2.25%, the AP reports. The Fed also repeated a pledge to "act as appropriate to sustain the expansion"—wording that the financial markets have interpreted as a signal for possible future rate cuts. Read on for coverage from earlier Wednesday, in advance of the rate cut being confirmed:

  • It comes as an "insurance cut," explains the New York Times, meaning one made to sustain the growth we're currently experiencing. The Times views it as fueled by question marks surrounding global growth and persistently low inflation, "because both pose major threats to the health of the economy at a time when the central bank has limited ammunition to fight off a downturn."

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  • The practical implications for consumers will be ... small, predicts Bankrate.com's chief financial analyst. That's because the Fed has raised rates by a quarter-point nine times since 2015, so this just begins to chip away at that. Case in point: If you're carrying a $5,000 credit card balance, a quarter-point cut will drop your minimum payment by $12 a year, per USA Today.
  • But the Fed has signaled more decreases are possible over the next year, which USA Today reports would positively impact the payments consumers have to make on credit cards, adjustable-rate mortgages, and car loans.
  • As far as multiple cuts go, the Wall Street Journal reports that over the past 25 years, the Fed has reversed from increasing rates to cutting them four times, and in all of those cases rates were cut more than once.
  • The AP notes that President Trump, a vocal critics of the Fed's recent moves, had big expectations for Wednesday. On Tuesday he said the Dow would be 10,000 points higher right now if not for the Fed's rate hikes in 2018. "I would like to see a large cut" in rates, he said.
  • The AP presents the simple pro and con of a cut: A cut "could help inoculate the economy against a potential downturn," by sparking more borrowing and spending. But it could be a "needless risk. By cutting rates now, the Fed is disarming itself of some ammunition it would need in case the economy did slide toward a recession."
(Read more Federal Reserve stories.)

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