Following the significant rebound in the stock market Monday amid increased confidence that major banks will cut interest rates, the Federal Reserve took decisive action Tuesday, dropping the rate by 0.5%, the largest reduction since the 2008 financial crisis. The action comes amid heightened pressure from President Trump, who has been calling for the Fed to take “big” action and says that Tuesday’s move still isn’t enough.
“We saw a risk to the outlook of the economy and we chose to act,” Federal Reserve Chair Jerome Powell said at a press conference Tuesday, as reported by The Washington Post.
In a statement Tuesday, the Fed indicated that it may take further stimulus measures if necessary. “The committee is closely monitoring developments and their implications for the economic outlook and will use its tools and act as appropriate to support the economy,” read the statement, as reported by the Wall Street Journal.
“The Fed’s action reduces the U.S. interest rate to just below 1.25 percent, down from 1.75 percent,” the Post explains. “Fed leaders voted unanimously in favor of the rate reduction, and Powell tried to project a sense of calm during short 13-minute press conference. He said repeatedly that the U.S. economic fundamentals still look healthy, but he said ‘sentiment’ had shifted.”
The Journal also underscores the unusual nature of the Fed’s actions. “Tuesday’s cut, which lowered the federal-funds rate to a range between 1% and 1.25%, is the first to occur in between a scheduled policy meeting since the 2008 financial crisis,” the Journal notes.
As The Daily Wire reported, President Trump has been ramping up pressure on Powell to follow the lead of other countries who have slashed their interest rates, among them Germany and Australia. The impact of the rate reductions and growing confidence that more major banks would fall in line resulted in the strongest positive movement for the stock market that it’s seen in over a decade on Monday.
In a series of posts Monday, Trump hammered Powell over the issue. “As usual, Jay Powell and the Federal Reserve are slow to act,” Trump wrote in the first of the tweets. “Germany and others are pumping money into their economies. Other Central Banks are much more aggressive. The U.S. should have, for all of the right reasons, the lowest Rate. We don’t, putting us at a competitive disadvantage. We should be leading, not following!”
Trump returned to the issue later in the day, this time specifically citing Australia’s decision to reduce the interest rate to a record low as a model for the kind of response the U.S. needs.
“Australia’s Central Bank cut interest rates and stated it will most likely further ease in order to make up for China’s Coronavirus situation and slowdown,” Trump wrote. “They reduced to 0.5%, a record low. Other countries are doing the same thing, if not more so. Our Federal Reserve has us paying higher rates than many others, when we should be paying less. Tough on our exporters and puts the USA at a competitive disadvantage. Must be the other way around. Should ease and cut rate big. Jerome Powell led Federal Reserve has called it wrong from day one. Sad!”
In response to Powell’s announcement Tuesday, Trump made clear that he does not believe it’s enough. “The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors,” he wrote. “We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!”
The Federal Reserve is cutting but must further ease and, most importantly, come into line with other countries/competitors. We are not playing on a level field. Not fair to USA. It is finally time for the Federal Reserve to LEAD. More easing and cutting!
— Donald J. Trump (@realDonaldTrump) March 3, 2020