The US Federal Reserve will remain flexible and interest rates will not be on a “preset course” in the face of persistent risks from trade uncertainty and weak global growth, the central bank said Wednesday.
In its policy meeting late last month, when the Fed cut the benchmark interest rate for the first time in more than a decade, central bankers said they would keep their options open for the next move, amid fears the trade tensions could slow the US economy.
President Donald Trump's trade war with Beijing has increased uncertainty and caused businesses to hold off on investments, at a time when China's economy is slowing and Europe is facing the uncertainty of Brexit.
Those risks are expected to persist, and the “continued weakness in global economic growth and ongoing trade tensions had the potential to slow US economic activity,” according to the minutes of the Fed's July 30-31 policy meeting.
After four rate increases last year – the last one in December – the Fed has been under relentless pressure from Trump to stimulate the economy by reversing course and slashing rates.
While the minutes made no mention of Trump's constant attacks, Fed officials said they would be “guided by incoming information and its implications for the economic outlook and that avoided any appearance of following a preset course.”
The July rate cut was viewed as “part of a recalibration... or mid-cycle adjustment” and, given the uncertainty surrounding the outlook, the officials “highlighted the need for policymakers to remain flexible and focused on the implications of incoming data for the outlook.”
Fed chairman Jerome Powell acknowledged at his news conference on July 31 that the rate cut was meant as insurance “against downside risks from weak global growth and trade policy uncertainty, to help offset the effects these factors are having on the economy.”
And the minutes showed officials were “mindful” that trade tensions were far from settled and that trade uncertainties could intensify again.
They said continued weakness in the global economy remained a significant downside risk.
And with inflation stubbornly weak, the minutes noted that a slowing US economy would further delay a sustained return of inflation to the two percent objective.
Fed officials expect US growth to slow in the second half of the year, but despite the risks to the outlook, they “continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the committee's symmetric two percent objective as the most likely outcomes.”
The minutes showed the central bankers are not unified, however: two officials voted against cutting rates while a couple favored a bigger cut.