US central bank cuts key interest rate for first time since 2008

World Today

The latest round of U.S.-China trade talks has wrapped up without a breakthrough.

The ongoing dispute has rattled global markets and created an unpredictable trade outlook.

In response, the U.S. Federal Reserve has reduced a key interest rate for the first time in more than a decade.

CGTN’s Roee Ruttenberg has the details.

As America’s central lender, the U.S. Federal Reserve plays a key role in determining the price of borrowing.

When the economy is sluggish, lower rates encourage people to buy, to build, to be big. They also encourage companies to invest, to expand, to hire because money is cheaper. Lowering rates can stimulate growth. When it’s needed, the bank steps in.

The U.S. President has been touting America’s economic success, he said, under his leadership. And yet for months, Donald Trump, who’s seeking re-election, has been publicly pressing the otherwise independent Fed to cut rates — raised seven times on his watch.

On Wednesday, the Fed chairman Jerome Powell delivered. He said, “”We decided today to lower the target for the federal funds rate by a quarter of a percentage point to a range of two-percent to two and a quarter percent.”

Powell was appointed head of the non-partisan Fed by Trump, who’s said that decision may have been a mistake. Even this rate cut was criticized as insufficient with Trump taking to Twitter saying: “As usual, Powell let us down.”

He had lobbied for the Fed to signal a lengthy and aggressive rate-cutting cycle. Powell on Wednesday defended his move, calling it simply a ‘midcycle adjustment’ and adding: “The outlook remains favorable. This action is designed to support that outlook. It is intended to ensure against downside risks from weak global growth and trade policy uncertainty.”

Namely, the ongoing trade war with China. Talks in Shanghai ended Wednesday with no clear progress toward a deal and US and Chinese negotiators agreeing to resume negotiations in September.

Powell says, “It is not exactly the same as watching global growth when you see central banks and governments responding with central policy, you see growth strengthening you see business cycle. With trade tensions, which do seem to be having a significant effect on financial market conditions and on the economy, they evolve in a different way.”

He adds that he wasn’t criticizing the President’s policy, just responding to the consequences.

Traditionally, the Federal Reserve has always acted as sort of a firefighter. But some say under the Trump administration its role has morphed into that of a gardener pruning back the economy to keep it healthy. Some fear if there are more cuts, as many expect there will be, there will be nowhere to go when the economy crucially needs them.

Mike Archbold discusses US key interest rate cut

CGTN’s Elaine Reyes spoke with Mike Archbold, former CEO of GNC Holdings, about U.S. key interest rate cut.