The Federal Reserve cut interest rates for the first time since 2008 as inflation continued to track below target and signs of slowing global growth persisted. But Fed Chairman Jay Powell dashed hopes that aggressive cuts may follow, saying that the cut does not represent the start of a lengthy easing cycle.
The Federal Reserve cut its benchmark rate by 25 basis points to a range of 2.0% to 2.25% from 2.25% to 2.5%.
The rate cut was fully priced in, according to Investing.com's Fed Rate Monitor Tool, though some had been holding out hope for a more aggressive 50-basis-point cut as inflation continues to undershoot the Fed's target.
"In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent," the Fed said.
But at his press conference, Powell said the the move was "a mid-cycle policy adjustment," indicating that the market's idea of continual rate cuts in the future was off base.
The most recent measure of core personal consumption expenditures (PCE), the Fed's preferred measure of inflation, came in at 1.7%, below the central bank's 2% target.
President Donald Trump, a day earlier, had called on the Fed to make a “large cut” to offset a series of hikes last year.
"I'm very disappointed in the Fed,” Trump told reporters Tuesday morning. "I would like to see a large cut, and I'd like to see immediately the quantitative tightening stop.”
In a move to further ease financial conditions, the central bank pledged to end its balance sheet shrinking program, which many argue counters rate cuts, at the end of the month, two months earlier than initially anticipated.
"The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated," the Fed said.
The last time the Fed cut rates was Dec. 16, 2008, the heart of the Financial Crisis and three months after the collapse of Lehman Bros., which had brought series of emergency cuts in the interim.
The Fed capitulated to cutting rates to 0% that day, but established a target range of 0% to 0.25%, saying “weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”
Rates had been at 4.25% at the end of 2007. The FOMC wouldn’t hike until Dec. 16, 2015.
The Fed’s path of hiking rates to the current level, which has drawn the ire of the president, began on March 15, 2017, where it noted that the FOMC “expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate.”