JUDY WOODRUFF: The Federal Reserve cut a key short-term interest rate today, after raising
it as recently as December.
It lowered the federal funds rate.
-- that's the rate that banks charge each other for loans -- by a quarter-point.
Unusually, the stock market fell, apparently disappointed that Chairman Jay Powell did
not signal that this might be the first in a series of cuts.
Also unusual, two Fed committee members voted against today's move.
At a press conference, Powell played down the lack of consensus.
JEROME POWELL, Federal Reserve Chairman: There is a range of views on the committee, and
-- but the committee is unified, completely unified, on our dedication to making the best
policy decisions we can make.
And that means people have a responsibility to do their best thinking and to present that
thinking.
And I wouldn't have it any other way.
In terms of the way forward, we are going to be data-dependent.
We are going to be, as we always are, doing what we need to do, what we believe we need
to, to support the economic expansion.
JUDY WOODRUFF: Late this afternoon, President Trump also weighed in, tweeting that: "As
usual, Powell let us down," that markets were looking for indications of a lengthy and aggressive
rate-cutting cycle.
Today's rate cut marks the first time the Fed has lowered interest rates in a little
over 10 years.
At that time, the U.S. economy was struggling to emerge from the great recession.
Today, economic indicators are strong, unemployment is at a 50-year low, with the stock market
recently hitting new highs.
So why cut now?
For answers to that and more, we once again turn to David Wessel, director of the Hutchins
Center on Fiscal and Monetary Policy at the Brookings Institution.
David, welcome back to the program.
DAVID WESSEL, Brookings Institution: Good to be here.
JUDY WOODRUFF: So, as we just mentioned, last time we looked, in December, the Fed was raising
interest rates.
Now they're lowering them.
Why?
DAVID WESSEL: Right.
So, they gave three reasons.
One is that they made a mistake in December.
The economy isn't as strong as they had anticipated.
Two, they're worried that inflation is too soft.
They expected inflation to be moving towards their 2 percent target, and it hasn't moved
there quite as effectively as they had hoped.
JUDY WOODRUFF: That's prices going up.
DAVID WESSEL: Prices going up.
It's hard to believe, the Fed trying to get inflation going up.
For old-timers like us, that seems like an impossible thing.
Like, we're used to the Fed doing the opposite.
And the third thing is that they're really worried about risk to the global economy,
not so much the United States, but Chairman Powell mentioned China and Europe.
And he also made clear -- and he said this several times -- that trade tensions, President
Trump's trade war, is hurting the economy, largely because it's depressing business spirits
and business investments.
So, in a sense, they're saying, we need to cut rates now to protect the economy in part
from the damage that President Trump's trade policies are doing for the outlook.
JUDY WOODRUFF: So he's specifically pointing a finger at the president's trade policies?
DAVID WESSEL: He didn't quite say it like I did, but pretty close.
JUDY WOODRUFF: But cutting one-quarter of a point, it doesn't sound like a lot.
But what effect is that going to have on the economy and on ordinary Americans?
DAVID WESSEL: Well, it isn't a lot.
It's a small move, meant to offset some of the bad things that are going on in the economy.
The markets were anticipating this move.
So, for instance, mortgage rates have come down quite a bit.
Just a few months ago, mortgage rates were almost 5 percent.
Now they're 3.7 percent.
It will mean slightly lower rates on car loans, on some credit cards.
But it also means that people who are -- have money in a money market fund or in the bank
certificate of deposit will get less interest.
And that's, of course, frustrating to savers.
JUDY WOODRUFF: So President Trump being critical, because he says the Fed should have signaled
that there are going to be more rate cuts to come.
And the markets reacted to that.
Why didn't the Fed say more about that?
DAVID WESSEL: Well, I think you're right.
The markets seemed to have reacted to Chairman Powell's press conference, in which he refused
to say that this is a series of cuts.
He was a little confusing.
So I think that basically what the Fed is saying is, the economy is OK.
We -- this is taking out some insurance, just a little bit of insurance, against a bad outcome.
We will cut rates a lot if we think the economy is on the verge of the recession.
We don't think it is.
So this is not the first of a long series.
The markets still expect at least one more rate cut this year.
The president apparently wants more than that.
JUDY WOODRUFF: But they -- but, for whatever reasons, as you just said, the Fed is not
prepared to promise that.
DAVID WESSEL: No.
I mean, partly, it's because the markets and the analysts want more certainty, I think,
than the Fed can ever provide.
They don't really know -- and Chairman Powell talked about this -- how bad will trade tensions
be for the economy?
So they're trying to be cautious.
And, secondly, we are -- unemployment is at a 50-year low, and the economy is OK.
So the Fed doesn't believe it needs the really strong medicine of sharp rate cuts.
The president apparently feels differently.
JUDY WOODRUFF: Very quickly, David Wessel, another focus of the president seems to be
on the strength of the U.S. dollar.
How does all that play into it?
DAVID WESSEL: The president worries a lot about the dollar, which has been strong, because
it hurts our exports and makes trade deficits worse.
And that's a big concern of his.
The fact that other central banks around the world are cutting their interest rates means
that their currencies will fall relative to the dollar.
So one factor in the Fed's decision was, they knew that they had to cut rates now.
Otherwise, the dollar might get too strong.
And, apparently, they don't want that.
And the president surely doesn't.
JUDY WOODRUFF: Well, one more act in this drama that goes on.
We will keep watching.
DAVID WESSEL: Keeps me employed.
(LAUGHTER)
JUDY WOODRUFF: David Wessel, thank you.
DAVID WESSEL: You're welcome.