The Fed is expected to cut interest rates for the second time in a decade Wednesday, but Fed Chairman Jerome Powell is unlikely to deliver the message markets want to hear on plans for future rate cuts. “He’ll underwhelm everyone and not overwhelm anyone,” said Diane Swonk, chief economist at Grant Thornton. She expects a cut of 25 basis point, taking the fed funds target rate range to 1.75 to 2.0%, following the last quarter point cut on July 31.
At the Fed’s last meeting, Powell rocked markets, sending stocks lower and bond yields higher when he described the rate cut as a “mid-cycle adjustment,” meaning it was not part of a larger rate cutting cycle. “He won’t promise anything more. He’ll keep his cards close to his chest. He’ll be an artful dodger again,” said Swonk.
The Fed’s approach may make some market pros unhappy, and it will certainly disappoint President Donald Trump who said the Fed were boneheads and called for zero or even negative rates. Economists said it’s unlikely the Fed forecast will include more than one more rate cut in its outlook for this year, presented on a chart, known as the “dot plot.” Many in the markets are looking for two more cuts this year. Besides unsettling some market pros, the Fed is also expected to face opposition from within, with at least two Fed presidents again dissenting to a rate cut. At the last meeting, Kansas City Fed President Esther George and Boston Fed President Eric Rosengren, objected to the first cut on the grounds it was unwarranted given the strength of the economy.