President Donald Trump declared himself unimpressed with the Federal Reserve’s quarter percentage point rate cut on Wednesday, saying that Fed chief Jerome Powell “let us down” with a meager easing.
The central bank cut rates for the first time since the 2008 crisis, in what market observers interpreted as an “insurance policy” to buffer the economy against a deeper downturn. Yet in recent days, Fed officials have sent conflicting signals about the need for a new easing cycle, especially with unemployment low and growth above 2%.
Wednesday’s decision sent Wall Street sharply lower as investors digested confusing statements from Powell about the rate outlook.
It also prompted Trump — who’s blasted the Fed for hiking interest rates last year, then failing to cut this year in the face of a slowdown — to reiterate his displeasure with the central bank, and the man he selected to lead it.
Via Twitter, the president unleashed his latest tirade at the Fed, criticizing them for “not giving much help” to the U.S. economy.
What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world....— Donald J. Trump (@realDonaldTrump) July 31, 2019
....As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place - no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!— Donald J. Trump (@realDonaldTrump) July 31, 2019
Markets want more easing
Some on Wall Street had expected a 50 basis point rate cut, or at least the beginning of a new easing cycle. Yet Powell cast doubt on that idea in his press conference, citing the relative strength of the economy.
“Financial markets continue to expect that further easing will be necessary to protect growth, and after today's move are still pricing in two or three additional 25bps rate cuts by the end of 2020,” UBS said in a note to clients.
The Fed chief told reporters that Wednesday’s move “was not the beginning of a long series of rate cuts. What we are seeing is that it is appropriate to adjust policy to a somewhat more accommodative stance over time.”
The Fed’s easing elicited a mixed to negative reaction from Wall Street economists. Some critiqued the central bank for appearing to bow to political pressure, while others say the Fed’s move was unnecessary given healthy growth and a strong labor market.
“Kudos to the Trump economics team for getting the president's view across and Fed officials to act on it. What's next, return to the gold standard?,” a sarcastic Chris Rupkey from MUFG-Union Bank asked on Wednesday.
“Rate cuts sustain the expansion for now and will help with the president's reelection efforts. But it throws savers under the bus and chips away at the safe investment returns that the Baby Boom generation of retirees need to live on,” he added.
Javier David is an editor for Yahoo Finance. Follow Javier on Twitter: @TeflonGeek