Insurance Cut
That’s what happened in the 1990’s.
“The intention is very much like 1995-96,” said Jonathan Wright, a Johns Hopkins University economics professor and a former Fed researcher. “Time will tell if it works out quite that way.” Those rate cuts extended that expansion into 2001.
There are a lot of comparisons between now and then. Back then, the Fed trimmed rates following an extended tightening cycle -- just as it began to do on Wednesday -- to prevent a slowing economy from stumbling into recession.
The rate cuts came in the year before a presidential election, though in 1995 it was Democrat Bill Clinton about to seek a second term, not Republican Trump.
Downside Risks
Powell gave three rationales for Wednesday’s move, which was opposed by Fed Reserve Bank Presidents Esther George and Eric Rosengren. Slowing global growth and elevated trade tensions are already hitting U.S. manufacturers. And there’s a risk that could get worse.
What’s more, inflation remains stubbornly below the Fed’s 2% objective.
“Continued below target inflation could lead to a worrisome and difficult-to-reverse downward slide in longer term expectations,” Powell said.
He denied that Trump’s repeated criticism of the Fed was behind Wednesday’s decision to cut rates. “We never take into account political considerations,” he said in response to a reporter’s question.