Fundamental Comment

Fed cut interest rate to avert low inflation, economic slowdown

Fed cut interest rate to avert low inflation, economic slowdown

The Federal Open Market Committee minutes for July meeting showed that it was necessary to cut interest rates to avoid risks stemming from the too low inflation and slowdown in business investment.

Some policymakers opted to vote for an interest rate cut to “help counter the effects on the outlook of weak global growth and trade policy uncertainty, insure against any further downside risks from those sources, and promote a faster return of inflation” to the 2 percent goal, the minutes said.

The minutes stressed that the 25-basis point rate slash was part of an “ongoing reassessment” of the policy path that started in late 2018, and the committee didn’t view the cut as part of an extended cycle of reductions.

“Trade uncertainty would remain a persistent headwind for the outlook,” according to the minutes.

Participants saw still viewed strong U.S. economic growth, robust labor markets and inflation near the goal.

Both Fed presidents Eric Rosengren of Boston and Esther George of Kansas City had called for a rate cut by 50 basis points.

The US dollar index fell following the release of the Fed minutes to 97.99 after hitting a high of 98.17 earlier in the session.

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