Fed Likely to Cut Rates a 2nd Time     09/18 06:05

   The Federal Reserve looks poised to cut interest rates for a second time 
Wednesday to help extend the economic expansion in the face of global weakness, 
President Donald Trump's trade war with China and geopolitical risks such as 
the attacks on Saudi Arabia's oil facilities.

   WASHINGTON (AP) -- The Federal Reserve looks poised to cut interest rates 
for a second time Wednesday to help extend the economic expansion in the face 
of global weakness, President Donald Trump's trade war with China and 
geopolitical risks such as the attacks on Saudi Arabia's oil facilities.

   The modest rate cut the Fed announced in July --- its first in more than a 
decade --- left its benchmark short-term rate in a range of 2% to 2.25%. It 
also raised expectations that it would follow with up to three additional 
quarter-point rate cuts this year.

   Most economists have since scaled back their forecasts for further rate cuts 
this year to one or two beginning Wednesday. A resumption of trade talks and a 
less antagonistic tone between Washington and Beijing have supported that view.

   So has a belief that oil prices will remain elevated, that inflation might 
finally be reaching the Fed's target level and that the U.S. economy remains 
sturdy.

   Yet no one, perhaps not even the Fed, is sure of how interest rate policy 
will unfold in coming months. Too many uncertainties exist, notably the outcome 
of the trade war.

   Trump has meanwhile kept up a stream of public attacks on the central bank's 
policymaking, including referring to Powell as an "enemy" and the Fed's 
policymakers as "boneheads." Despite a still-solid job market and brisk 
spending by consumers, the president has insisted that the Fed slash its 
benchmark rate aggressively --- even to below zero, as the European Central 
Bank has done --- in part to weaken the U.S. dollar and make American exports 
more competitive.

   No one expects the Fed to go anywhere near that far.  Chairman Jerome Powell 
has said that the policymakers remain focused on sustaining the expansion and 
keeping prices stable without regard to any outside pressures.

   At a news conference Powell will hold Wednesday, he will likely be asked 
about the risks facing the economy, including the attacks on Saudi oil 
production facilities, which sent oil prices surging and could raise inflation 
expectations.

   The Fed is also monitoring the global slowdown, especially in Europe, and 
Britain's effort to leave the European Union. A disruptive Brexit could 
destabilize not just Europe but the U.S. economy, too

   U.S. inflation, which has long been dormant, has begun to show signs that it 
is reaching the Fed's 2 percent target and might remain there. If the Fed's 
policymakers conclude that inflation will sustain a faster pace, it might give 
them pause about cutting rates much further.

   The most serious threat to the expansion is widely seen as Trump's trade 
war. The increased import taxes he has imposed on goods from China and Europe 
--- and the counter-tariffs other nations have applied to U.S. exports --- have 
hurt many American companies and paralyzed their plans for investment and 
expansion.

   In recent days, the Trump administration and Beijing have acted to 
de-escalate tensions before a new round of trade talks planned for October in 
Washington. Yet most analysts foresee no significant agreement emerging this 
fall in the conflict, which is fundamentally over Beijing's aggressive drive to 
supplant America's technological dominance.

   Balanced against a possible truce in the trade war are events that could 
undercut the economy, from a strike at General Motors to the attack that has 
temporarily reduced Saudi Arabia's oil production. The Trump administration 
says Iran is behind the attack, raising already high U.S.-Iran tensions.

   So far, most economists say the temporary loss of Saudi production won't end 
up hurting the U.S. economy, primarily because there remains plenty of global 
supply.

   "Higher oil prices are not the big economic deal that they have been in 
decades past," said Mark Zandi, chief economist at Moody's Analytics.

   On Wednesday, in addition to announcing its decision on rates, the Fed's 
policymakers will update their forecasts for economic growth, unemployment, 
inflation and interest rates over the next three years before Powell's news 
conference.

   The case for a rate cut is by no means overwhelming. The job market is 
essentially healthy, and wages are rising. Last week, the government reported 
that retail sales rose in August. An index of consumer sentiment produced by 
the University of Michigan has rebounded.

   Still, the course of the trade war, along with other unknowns like the 
outcome of Brexit, will likely be the biggest factor in the Fed's 
decision-making.

   "They have to react to policies that can change with the speed of a tweet," 
said Diane Swonk, chief economist at accounting firm Grant Thornton.


(KR)