Federal Reserve Cuts Interest Rates Again But Pauses Future Adjustments

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The Fed indicated it would pause the rate-cutting cycle.

Samuel Corum/Getty Images

(Updated 2:42 p.m. EST, 10/30/19)

Topline: In a widely expected move, the Fed continued its “mid-cycle adjustment” by cutting interest rates to the 1.5%-to-1.75% range on Wednesday, but also indicated that it would pause the monetary easing cycle before implementing additional rate cuts.

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  • The Fed concluded its meeting with Chair Jerome Powell announcing the rate cut, which will be the third this year and in line with the “mid-cycle adjustment” that he alluded to in July when the Fed started slashing rates.
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  • The most recent decision to cut rates indicates that the Fed will pause on future adjustments, adopting a more wait-and-see approach as it “assesses the appropriate path” forward.
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  • Fed officials 8-2 voted in favor of this latest quarter-point rate cut, indicating that there is still some boardroom division about the direction of future monetary policy, though less than last time.
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  • Powell previously said in the July and September meetings that the Fed does not plan to enter into a prolonged easing cycle. In remarks earlier this year, Fed Chair Jerome Powell raised comparisons to two other “mid-cycle” adjustments, in 1995 and 1998, when Alan Greenspan’s Fed slashed rates three times during both periods to successfully keep the economic expansion alive.
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  • “Coming into today, the market expected a pause and that’s what we got,” says Mark Freeman, chief investment officer at Socorro Asset Management. “The market is still looking for another rate cut, but not until later in 2020.”
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  • “As downside risks appear to be contained for the time being, the Fed is looking to hang its hat on the successful completion of the ‘mid-cycle adjustment’ and sit back and watch as things unfold,” says Charlie Ripley, senior investment strategist for Allianz Investment Management.

Crucial quote: “The FOMC was very non-committal, being neither hawkish nor dovish in their prepared statement,” says Calvin Norris, portfolio manager at Aegon Asset Management. “On balance, this is a positive for markets, given there seemed to be some fear this would be a ‘hawkish cut’ by the FOMC.”

What to watch for: It remains unlikely that the Fed will make an additional rate cut later this year in its December meeting, unless looming economic risks worsen. “Despite the slight hint that the Fed may pause its rate cuts in December, I feel the Fed hasn’t boxed itself in and will remain data dependent, while keeping all of their options available,” says Ryan Nauman, a market strategist at Informa Financial Intelligence’s Zephyr.

Key background: The current bull market, which emerged from the ashes of the 2007-2009 financial crisis, is already the longest period of sustained growth in U.S. history. However, it has increasingly come under stress from slowing global economic growth and geopolitical risks, like Brexit and the trade war with China. The Fed has a mixed view of the U.S. economy, which has held steady but is now showing some cracks: Manufacturing has declined, GDP growth is slowing (1.9% in the third quarter, down from 3.1% and 2% in the first and second quarters) and consumer spending has remained solid-although that too is starting to show signs of stress.

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I am a New York-based reporter for Forbes, covering breaking news-with a focus on financial topics. Previously, I’ve reported at Money Magazine, The Villager NYC, and T