On The Money: Fed cuts rates for third time this year | Hints at pause | Economy holds steady, growing at 1.9 percent | Chile won't host APEC summit | Move adds uncertainty to US-China trade deal

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THE BIG DEAL–Fed delivers third rate cut this year: The Federal Reserve announced Wednesday that it would cut interest rates for the third consecutive time this year as the U.S. economy continues to slow amid a global slump.

The central bank’s policymaking arm, the Federal Open Markets Committee (FOMC), voted 8 to 2 on Wednesday to cut its baseline interest rate range by 0.25 percentage points to a 1.5 percent to 1.75 percent target.

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The FOMC also said it will “continue to monitor” the economic outlook “as it assesses the appropriate path of the target range for the federal funds rate,” a statement Fed watchers have interpreted as a sign the bank could hold rates steady for the rest of the year.

 

The details:

  • The FOMC said in a statement that cutting rates now reflects the Fed’s belief that the economy will continue to grow, add jobs and push prices and wages higher, “but uncertainties about this outlook remain” as the growth rate slows.
  • Federal Reserve Chairman Jerome Powell explained in a press conference Wednesday that risks had eased as the U.S. and China close in on a partial trade agreement. The chairman added that the Fed believed the current rate range would be “appropriate” to support the economy barring a major downturn.
  • “If something happens to cause us to materially reassess that outlook, that’s what would cause us to change our views on the appropriate stance of policy,” Powell said. “We don’t see any evidence of that.”  

 

I break down the Fed’s decision here.

 

At a crossroads: While the Fed was widely expected to cut rates this month, the decision comes amid increasing concern that the central bank could soon run out of weapons to fight a recession. 

  • The U.S. economy has slowed steadily throughout 2019 after a burst of growth last year.
  • U.S. gross domestic product rose at an annualized rate of just 1.9 percent in the third quarter, while average monthly job gains have fallen from 223,000 in 2018 to 161,000 in 2019.
  • The upcoming October jobs report, scheduled to be released Friday, is also expected to show paltry employment gains due in part to the 40-day strike at General Motors plants that began Sept. 15.
  • And business investment in equipment and structures, manufacturing output, and exports have all fallen sharply as fading global growth cuts into foreign demand for U.S goods and services.

 

But critics of the Fed’s approach argue that with interest rates already close to stimulatory levels, another rate cut will deprive the Fed of crucial fuel to power the economy through a severe downturn.

 

Powell’s defense: Powell tamped down fear that the declines in business investment and expansion would soon cut into a 3.5 percent unemployment rate, a 50-year low. The chairman argued that the consumer-side of the economy has largely been insulated from headwinds challenging businesses.

“The consumer-facing companies that we talked to in our vast network of contacts report that consumers are doing well and are focused on the good job market and rising incomes,” Powell said. 

“We see the economy as having been resilient to the headwinds that have been blowing this year.”

 

LEADING THE DAY

US economy grew at 1.9 percent in third quarter, holding steady amid recession fears:

The U.S. economy grew at an annualized rate of 1.9 percent in the third quarter of 2019, upending expectations of a sharp slowdown driven by a global economic slump and the rising costs of trade tensions.

U.S. gross domestic product (GDP) grew at an annual rate of 1.9 percent between July and September, according to data released by the Bureau of Economic Analysis. The economy grew at an annualized rate of 2.1 percent in the second quarter, 3.2 percent in the first quarter and 2.9 percent in all of 2018.

Trump touted “The Greatest Economy in American History!” in a tweet less than an hour before the highly protected GDP data was released. I break down the full report here.

 

The good: While 1.9 percent is far below the 3 percent growth rate President TrumpDonald John TrumpTrump congratulates Washington Nationals on World Series win Trump hints that dog injured in al-Baghdadi raid will visit White House Vindman says White House lawyer moved Ukraine call to classified server: report MORE promised during his 2016 campaign, economists had largely projected GDP growth to slump as low as 1.3 percent.

  • Consumer spending, which powers 70 percent of the economy, grew at a solid rate of 2.9 percent in the third quarter, though well below a 4.6 percent spike in the second quarter. 
  • Exports also reversed a steep 5.7 percent decline in the second quarter to rise 0.7 percent in the third, while residential investment also rebounded from a 3 percent decline in the second quarter to a 5.1 percent increase in the third.

The bad: Even so, business investment in structures and equipment continued to decline, reflecting an ongoing U.S. manufacturing recession and the unwillingness of businesses to expand amid global economic tensions.

 

Chile backs out of hosting APEC summit, adding uncertainty to US-China trade deal: 

Chile will no longer host the Asia-Pacific Economic Cooperation (APEC) summit next month amid widespread unrest in the country, President Sebastián Piñera announced Wednesday, adding uncertainty to a trade agreement between the U.S. and China.

  • President Trump was among the world leaders expected to attend the gathering in Santiago on Nov. 16 and 17.
  • Trump said as recently as Monday that he planned to meet with Chinese President Xi Jinping there to sign phase one of a trade deal between the two countries.
  • It was not immediately clear if the summit would be called off altogether or held in a different location.

White House deputy press secretary Hogan Gidley said in a statement that it did not appear there was a secondary site prepared to host APEC in light of Chile’s announcement. He downplayed any impact the change might have on the signing of the China trade deal, which the two sides are still negotiating.

 

GOOD TO KNOW

  • AP: “Trump’s Rust Belt revival is fading. Will it matter in 2020?”
  • The Washington Post: “In China’s capital of Halloween slime and ooze, the trade war is a scary subject”
  • Molson Coors CEO Gavin Hattersley said Wednesday that the company will undergo a massive restructuring across North America, cutting hundreds of jobs and merging its Canadian, U.S. and Latin American brands into one company.

 

ODDS AND ENDS

  • Twitter will no longer run any political advertising promoting candidates or particular hot-button issues, CEO Jack Dorsey announced Wednesday. The announcement comes amid ongoing controversy over rival Facebook’s decision to allow misinformation in political advertising, a move decried by top Democrats over recent weeks.
  • Meanwhile, Facebook CEO Mark ZuckerbergMark Elliot ZuckerbergHillicon Valley: Twitter to refuse all political ads | Trump camp blasts ‘very dumb’ decision | Ocasio-Cortez hails move | Zuckerberg doubles down on Facebook’s ad policies | GOP senator blocks sweeping election reform bill Zuckerberg defends buying Instagram amid antitrust scrutiny Ocasio-Cortez lauds Twitter’s decision to refuse political ads MORE on Wednesday ardently defended Facebook’s controversial political advertising policy during the company’s quarterly earnings call.
  • Fiat Chrysler and the owners of French automaker Peugeot confirmed Wednesday that they are exploring a potential $50 billion merger that would create one of the largest automobile giants in the world.
  • Boeing President and CEO Dennis Muilenburg admitted the company’s 737 MAX planes had design issues as another internal email was made public that demonstrated employee concerns with the aircraft.
  • The United States and six gulf nations have agreed to sanction business and individuals they say support Iran’s Revolutionary Guard and Hezbollah.