Federal Reserve Chairman Jerome Powell is leading his colleagues to cut interest rates this week for the first time since 2008, even though the economy looks healthy, partly because it isn’t behaving as expected, The Wall Street Journal reports.
Both inflation and market-determined interest rates are still lower than some of their models would have forecast, given years of strong hiring and solid economic growth.
These developments suggest that Fed officials haven’t been providing as much support to the economy as they had thought, even though their benchmark rate is low by historical standards.
Moreover, some officials believe the rate needs to be even lower now to provide an extra cushion amid a darkening global outlook clouded by trade policy uncertainty.
Fed leaders see tighter linkages than in the past between the U.S. and global economies and think domestic rates can’t rise much higher above those in other advanced economies, which have much lower or even negative rates.
Their thinking marks a shift from recent years when they were raising the rate from near zero because their models held that falling unemployment would eventually fuel rising inflation. They wanted to move proactively to keep price pressures in check and prevent asset bubbles from forming. Read the full story.