As anticipated, the U.S. Federal Reserve cut its benchmark interest rate Wednesday, the first such a cut in over a decade. The move is intended to balance mounting economic uncertainties and the Fed indicated that it is ready to do more if warning lights continue to flash. There remains, however, the danger that the Fed — like central banks elsewhere around the world — is losing ammunition that it will need if a real crisis occurs.
The U.S. Federal Open Market Committee (FMOC), the official name of the 10-member group that sets interest rates, dropped its key interest rate by 0.25 point — to 2.25 percent — the first reduction since December 2008, when the world was in the grip of a financial crisis. The Fed also announced that it would end its program to divest itself of the $3.8 trillion in financial assets — Treasury bonds and mortgage-backed securities — that it had acquired in the aftermath of the crisis to provide liquidity to the economy and keep interest rates low. That effort was originally scheduled to end in two months; its termination is another means to ease pressure on the economy.
In a statement announcing the decision, the Fed justified the move by noting "uncertainties," in particular "the implications of global developments for the economic outlook as well as muted inflation pressures." In a news conference after the decision was announced, Federal Reserve Chairman Jeremy Powell blamed "weak global growth" and "trade policy" for what is generally considered an insurance measure.