Markets Remind the Fed That It Can't Win
Hours after delivering the desired rate cut, the central bank faced new pressure from markets and the president. What they want, the Fed can’t give.
Chairman Jerome Powell and the Fed tried to strike a balance with a cut, but not a big one.
Photographer: Mark Wilson/Getty Images
The Federal Reserve was hoping to have a no-drama policy meeting this week in what has become quite a politically charged environment for central banks. Initially, markets reacted very calmly when the Fed delivered the expected quarter-point rate cut – but that gave way to a volatile selloff, with major indicators ending the day down about 1% after selling off almost twice that intraday. This highlights the intense, co-dependent and increasingly unsustainable relationship between markets and the world’s most powerful central bank, as well as the likelihood of political complications.
Fed officials cited global economic uncertainties and muted inflation as the reasons for the first rate cut in 11 years. I suspect they were hoping that argument would help counter what has become more vocal questioning among economists, and even some former high-level officials, as to the need for any interest rate reduction at all, given the robustness of the domestic economy (further confirmed by this week’s data ahead of Friday’s release of the monthly jobs report).