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The Fed is likely to cut rates, then what?

Credit: Reuters Studio
Published on July 30, 2019 - Duration: 01:55s

The Fed is likely to cut rates, then what?

The Federal Reserve has sent clear signals it intends to cut interest rates Wednesday, but questions linger regarding how deep the cut will be and if the Fed will signal a readiness to lower rates in the future.

Conway G.

Gittens reports.

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The Fed is likely to cut rates, then what?

When the Federal Reserve wraps up its two-day meeting Wednesday - it's widely expected to announce its first interest rate cut since the financial crisis.

Most on Wall Street expect a quarter-point decline in the Fed's key lending rate.

But that's likely not enough for the Fed's most outspoken critic.

SOUNDBITE (ENGLISH): U.S. PRESIDENT DONALD TRUMP, SAYING: "The Fed in my opinion moved far too early and far too severely.

I would like to see a large cut." But a large cut might not be coming anytime soon.

For one - the economy is generally healthy, even as businesses pull back on their spending And two - Fed Chairman Jerome Powell wants to make sure he's got ammunition in case economic growth really starts to falter.

Reuters Fed watcher Trevor Hunnicutt: SOUNDBITE (ENGLISH): TREVOR HUNNICUTT, REUTERS FED CORRESPONDENT, SAYING: "The Fed is really facing a challenge right now because rates are so close to zero, they are at 2.5 percent right now and so that's a real issue for them because they don't have much room to cut.

Usually they cut about five percentage points during a typical recession, so already they've got limited ammunition, limited firepower." And that sets up a question about what will happen with interest rates after Wednesday's likely rate cut.

Does the market want a one-and-done rate move or will it be looking to Chairman Powell to do more?

SOUNDBITE (ENGLISH): TREVOR HUNNICUTT, REUTERS FED CORRESPONDENT, SAYING: "The challenge that Chair Powell has in his news conference and his statement after they announce the rate decision is what can they do to satisfy markets and deliver the easing in financial conditions that they want but also not necessarily back themselves into a corner…" By hinting at more rate cuts - and then not following through if the economy strengths could damage the Fed's credibility at a time of unprecedented attacks against the Fed from the White House.

But Powell will also want to appear ready to act.

Investors will be listening for clues when Powell takes questions from the press on Wednesday.

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