Federal Reserve Chairman Jerome Powell said the central bank’s rate cut approved Wednesday was part an ongoing move to adjust to economic conditions though no guarantee of future cuts.
Cutting rates is a way to brace against “downside risks,” to support the economy and to boost inflation, Powell said during a press conference after the vote.
“We’re thinking of it essentially as a mid-cycle adjustment to policy,” he said He added that Fed officials “think it will serve all of those goals” that he mentioned.
Looking at the history of the Fed, Powell cautioned against assuming that this week’s cut is the beginning of the cycles that happened in the past.
“That refers back to other times when the FOMC has cut rates in the middle of a cycle and I’m contrasting it there with the beginning of a lengthy cutting cycle,” he said. “That is not what we’re seeing now, that’s not our perspective now.”
Markets took Powell’s comments to be less dovish than anticipated, prompting a sharp selloff on Wall Street that pushed the Dow industrials briefly down by about 470 points.
The Fed voted to reduce its benchmark lending rate a quarter point to a range of 2% to 2.25%. It was the first reduction in the benchmark funds rate since December 2008.
Powell said the policy loosening is part of an evolution that began earlier this year, when the Fed switched from intending to hike rates twice this year to agreeing to a “patient stance.”
As concerns intensified over global growth, tariffs and low inflation, officials switched their stance in June to seeing a greater case for rate hikes to deciding to approve the rate cut at this week’s two-day meeting.
The chairman said there was “definitely an insurance aspect” to the cut.
“What you’ve seen over the course of the year as we’ve moved to a more accommodative policy, the economy has performed about as expected with the gradually increasing support,” Powell said. “Increasing policy support has kept the economy on track and kept the outlook favorable.”