WASHINGTON _ The Federal Reserve on Wednesday is poised to cut interest rates for a second straight time, but the big question is: How many more rate reductions is the central bank prepared to make in coming months?
The Fed shaved a quarter point from its key interest rate on July 31, and it has been signaling a similar move would be coming at the conclusion of its latest policy meeting Wednesday. That would knock the Fed rate down to between 1.75% to 2%.
By easing rates, the Fed is aiming to shield the American economy against headwinds from the U.S.-China trade war and slowing growth in Europe and Asia _ uncertainties that have weakened business spending and raised the risks of recession.
But Fed policymakers have been divided on just how much preventive medicine is warranted when the U.S. economy is still expanding at a healthy clip.
With job and wage growth solid, consumer spending has been strong since spring, and the latest data on industrial production and consumer prices suggest that manufacturing and inflation are firming up. A spike in crude prices Monday after the attack on Saudi Arabian oil facilities raised the prospect of higher inflation, but prices fell back Tuesday and analysts see the effect as transitory.
After Wednesday, analysts say the Fed could make one more quarter-point cut this year, at either the Fed's next meeting in late October or its final session in mid-December. Some investors are looking to the Fed to drop rates again in the early months of next year, although the latest financial market indicators have been more circumspect about future rate cuts.
The Fed's updated economic and interest rate projections, to be released Wednesday, will provide clues on the path forward. Fed Chairman Jerome H. Powell also will address questions from the news media afterward.
"Unless there are more tangible signs that the trade conflict is harming the U.S. economy, it will be difficult to forge a consensus for another rate cut in 2019," said Carl Tannenbaum, chief economist for Northern Trust in Chicago.
Besides pressure from financial markets, the Fed faces nonstop browbeating from President Trump to keep slashing interest rates. Last week, Trump called Powell and the Fed "boneheads" and pressed them to cut rates to zero or even into negative territory.
On Monday, Trump tweeted: "The United States, because of the Federal Reserve, is paying a MUCH higher Interest Rate than other competing countries. They can't believe how lucky they are that Jay Powell & the Fed don't have a clue."
U.S. interest rates and the dollar are stronger in large part because the American economy is performing better than other large advanced economies.
Powell and his colleagues are in a tough spot: They don't want Trump's unpredictable trade moves and weakness in the global economy to short-circuit the already record-long U.S. economic expansion. At the same time, the Fed's key rate is already low by historical standards, and continuing to lower it could fan stock market and other financial bubbles while leaving the central bank with less ammunition to cut rates when the next economic downturn comes.
