FOMC preview: Powell to highlight three themes about why they cut rates

Federal Reserve Promises $75 Billion of Liquidity to Stem Funding Market Chaos		680OHANNES EISELE  AFP  Getty Images John Carney17 Sep 2019

Federal Reserve Promises $75 Billion of Liquidity to Stem Funding Market Chaos 680OHANNES EISELE AFP Getty Images John Carney17 Sep 2019

Federal Reserve Chair Jerome Powell acknowledges that officials at the us central bank are fractured about next steps on interest rates.

The case for a rate cut is by no means overwhelming. "No 'guts, ' no sense, no vision!"

In addition, inflation, which has run chronically below the Fed's 2% target rate for years, may be picking up.

The New York bank said its temporary infusion of cash into the markets on Tuesday, through overnight repurchase agreements in which it briefly takes ownership of securities from primary dealers - major Wall Street firms such as JPMorgan Chase and Goldman Sachs - was created to keep the federal funds rate at 2 percent to 2.25 percent.

There was discord over the decision, with three officials dissenting. That ambiguity may have displeased investors on Wall Street.

After cutting rates for the second time this year on Wednesday, forecasts show that seven out of 17 officials favor an additional rate cut this year that would put the federal funds rate at a range of 1.5% to 1.75%.

Though the volatility isn't expected to have a direct impact on the Fed's setting of rates, it could weigh on Fed officials as they consider technical adjustments and guidance for their balance sheet outlook.

No one anticipates rates to fall below 1.5% in 2020, a sign that the current turbulence from a global slowdown and President Donald Trump's escalation of the trade war with China is viewed as manageable.

-Will Trump achieve at least a truce in his conflict with China and diminish a threat overhanging the USA economy?

Policymakers now anticipate the United States economy will grow slightly stronger than previously expected, at a 2.2% rate, and unemployment will hold steady at 3.7%, according to their updated economic projections.

In his remarks at a press conference Wednesday, Powell said the Fed expects the economy to remain strong and inflation to remain around its 2% target.

And despite Trump's insistence that the Fed aggressively slash what are already historically low interest rates, few businesses feel that borrowing rates are too high or that they can't obtain loans. The job market is essentially healthy, and wages are rising. Economists have blamed the slowdown, in part, on a trade war with China initiated by the Trump administration, which has driven up supply costs for US companies, forcing some to choose between raising prices and laying off workers. The Fed notes in its statement that "business fixed investment and exports have weakened".

On Monday, Trump linked the oil attack and the Fed's rate decision, saying that after "the oil hit", the economy needs "Big Interest Rate Drop, Stimulus!"

The Fed's action was approved on a 7-3 vote, with two officials arguing to keep rates unchanged and 1 arguing for a bigger half-point cut.

-Is U.S. inflation, dormant for years, finally starting to reach the level the Fed has long targeted?

The Federal Reserve Bank of NY injected as much as $75 billion into money markets to quell a spike in interest rates that threatened the target range for the US central bank's best-known benchmark.

The New York Fed on Tuesday infused that market with more than $53 billion as overnight borrowing costs surged close to 10%. On that day, it announced its first rate cut in more than a decade - since the eruption of the financial crisis in 2008.

The New York Fed has bumped that figure up to $75 billion for Wednesday.

A key date for those corporations was September 15, according to Wells Fargo, which has dried up the pool of funding used by broader markets for quick cash.

Balanced against a possible truce in the trade war are events that could undercut the economy, from a strike at General Motors to the attack that has temporarily reduced Saudi Arabia's oil production. European stocks are up slightly, with Germany's DAX 0.1% higher. In explaining its move to cut its key short-term rate to a range of 2% to 2.25%, the Fed cited the weakening global economy, uncertainties heightened by Trump's trade fights and chronically low inflation. The Trump administration says Iran is behind the attack, raising already high U.S. -Iran tensions.

"Expect 25 bps rate cut". The central bank boosted short-term rates four times in 2018, taking them to a range of 2.25 percent to 2.5 percent, before pulling back in July.

Officials also left the door open for another rate cut this year, reinforcing the message by Fed Chairman Jerome Powell that policymakers will do whatever is necessary to prevent a recession.

When policymakers last projected their forecasts in June, officials were split on whether to continue to hold rates steady or to make two potential rate cuts in the second half.

In recent days, the Trump administration and Beijing have acted to de-escalate tensions before a new round of trade talks planned for October in Washington.