"We may get a dissent or two, but it seems like a 25-basis-point cut is pretty much locked in", said Julia Coronado, president and founder of MacroPolicy Perspectives LLC in NY.
Following the 2008 financial crash, the Fed had slashed borrowing costs to nearly zero. The economy continues to grow. This was mainly the issue the White House had with the institution as the tempering economy could reflect badly in the short-term on the incumbent government. Starting in 2015, however, it has raised interest rates nine times, most recently in December 2018. He has tried the latter tack in the past, and the president's reasons for making his latest threat - China's alleged failure to buy promised USA agricultural goods, and to stop illegal fentanyl exports - hint at what China could give Mr. Trump when trade talks resume in Washington next month. The rate was reduced by 0.25% and now the target stands in the range of 2.00%-2.25%. Esther George, head of the Fed's Kansas City bank, said she would be willing to support a future rate cut should incoming data weaken.
A significant minority of traders, meanwhile, expected a half-point cut, according to CME data, so they'll be disappointed, too - even though buoyant stock and credit markets are hardly crying for help. The benchmark S&P 500 index closed down 1.1% for the day.
Traders are betting the rate cut could help give the economy, and stock prices, a boost.
It also said it would immediately stop the runoff of its bond portfolio. It accumulated these holdings during the crisis and has been gradually shrinking the balance sheet since the recovery. The central bank also telegraphed an immediate end to its so-called "quantitative tightening" program.
Yet seen through the lens of the Fed's dual mandate - full employment and stable prices - everything is still humming as the longest expansion in US history enters its second decade, with economic growth steady, unemployment at historic lows and inflation tame. One of the motivating factors of the rate cut was the trade situation between the USA and China, which could be aggravated even further as Trump promised on Thursday to impose additional tariffs on $300 billion worth of imports starting in September. But he didn't make a case for why a rate cut might cause some of them to reverse course. "It's better than none at all", - commented Brett Ewing, the chief market strategist at First Franklin Financial Services in Florida. On Wednesday, the chairman seemed unwilling to embrace the likelihood of future cuts in an environment where rates worldwide are already ultra-low. The FOMC decision doesn't usually involve this many dissents. Trump's tariff salvo roiled financial markets anew, sending 10-year Treasury yields tumbling through 2% and crude oil down 8% on Thursday. Because the policies undertaken by the Fed are aiming for long term results and could have adverse effects in the short run, which is something elected officials care more about, there is a clear conflict of interests.
A bad reason to lower interest rates? In particular, Trump was dissatisfied with the absence of a strong message of further rate cuts.
The Fed's decision to cut rates in part to defuse those pressures showed that Trump can influence the Fed - if not through public hectoring then through his tariffs, said Sarah Bloom Raskin, who formerly served with Powell on the Fed's board.
Stocks had been rebounding from Wednesday's Fed-induced sell-off before Trump put trade back at the center of investor minds.
"We're seeing that it's appropriate to adjust policy to a somewhat more accommodative stance over time, and that's how we're looking at it", Powell said.
Powell pushed back against concerns that the U.S. president was interferring too much in the Fed, saying that "we do not take political considerations into account".