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  • Fed Cuts Interest Rate, First Reduction Since Financial Crisis

    August 1, 2019 by AM Best

    WASHINGTON – The Federal Reserve has moved to cut interest rates on investments by 0.25% — reversing a four-year trend in which the Fed had consistently moved to increase rates. It was the first such reduction since the financial crisis in 2008.

    The policymaking Federal Open Market Committee, by an 8-2 vote, reduced its benchmark target a quarter point; the new range will be from 2% to 2.25%, it said in a statement. Voting against the measure were FOMC members Esther L. George and Eric S. Rosengren, who preferred to maintain the target range for the federal funds rate at 2.25% to 2.50%, the statement said.

    The reduction reverses a series of rate increases the Fed initiated in 2015 that then reflected a growing U.S. economy and low unemployment rate (Best’s News Service, June 13, 2018).

    Although the U.S. economy remains strong, the reduction was prompted by uncertainty around global growth and persistently low inflation in the nation’s economy, the FOMC statement said.

    “In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower the target range for the federal funds,” it said. “This action supports the committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the committee’s symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain.”

    Andrew Melnyk, American Council of Life Insurers vice president, research and chief economist, reacted cautiously to the move.

    “Life insurers don’t tend to focus on single actions by the Federal Reserve Board, but the longer trend lines,” he told Best’s News Service. “A renewed push to prolonged, low interest rates would concern life insurers as they don’t favor retirement savers.”

    The FOMC statement did not indicate whether the Fed would make further reductions in the future.

    (By Frank Klimko, Washington correspondent, BestWeek: Frank.Klimko@ambest.com)

    BN-NJ-7-31-2019 1623 ET #

    Originally Posted at AM Best on July 31, 2019 by AM Best.

    Categories: Industry Articles
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