The US central bank has cut interest rates for the third time this year in an attempt to keep the longest running period of growth in the country’s history continuing into the crucial election year of 2020.
But the Federal Reserve put itself on a potential collision course with Donald Trump when it signalled to the financial markets that it had no immediate intention of cutting the cost of borrowing further.
The president has put intense pressure on the Fed to boost the world’s biggest economy and his own re-election prospects by making aggressive cuts in the cost of borrowing.
But the central bank’s chair, Jerome Powell, said there was a limit to what the Fed could do and that a more effective way to stimulate activity would be for Congress to loosen fiscal policy through spending increases or tax cuts.
Two members of the Fed’s policy-making committee voted against the quarter-point cut in rates to between 1.5% and 1.75%.
The move followed news that the world’s biggest economy grew at an annual rate of just under 2% in the third quarter of 2019.
In a statement explaining the decision, the Fed said unemployment had remained low and household spending had been growing strongly, but business investment and exports had remained weak. Inflation was below its 2% target.
Although Trump has boasted about the strength of the economy, growth has slowed this year as the impact of tax cuts has faded and manufacturing has been hit by the trade war with China.
Paul Ashworth, the chief US economist at Capital Economics, said the Fed was still likely to cut at its next meeting despite signalling it was adopting a wait-and-see approach.
“On balance, we still anticipate that a further deterioration in the incoming activity data will persuade the Fed to change tack and cut interest rates one final time in December,” he said.
Rajan Naik, the director of Financial Markets Online, said: “Another Fed rate cut, another masterclass in the long game from Jerome Powell. Despite the surprisingly strong GDP data, the Fed chairman remains unwavering in his desire to keep ahead of the economic curve.
“Even though he began his press conference with a list of the things that are going right – American consumer spending is in rude health, GDP is holding up well and US workers are basking in the lowest jobless rate for five decades – Mr Powell is keen to see off any economic clouds before they darken the horizon.”
