Core inflation at 1.8% continues to run below target 2%.
Federal reserve decides upon another 0.25% cut in interest rates, targeting range of 1.5% to 1.75%.
Action is taken to provide meaningful support to the economy in response to global economic slowdown and the increasing disinflationary pressure felt from around the world. The special characteristics of this particular slow down is a lack of any large imbalances in the economy.
Dual mandate of the federal reserve
2% symmetrical inflation target
- Stable prices
- Low unemployment rates
- Consumer confidence remains strong
- Unemployment rate is at historic low
- Business fixed investments has slowed
- Global exports has slowed
- Manufacturing compared to a year ago is down
macro environment risk
- protracted US/China trade risk is down
- No deal Brexit risk is down
economic health monitor
- Leverage in financial system: low
- Funding risk in banks and non-banks: low
- Asset prices: no major bubble, high in some
- Leverage in non-financial sector
- households: gone down
- businesses + corporate debts: historic high
- Concerns in Overnight Repo markets persist.
- Banks have liquidity in excess of required reserves level but choose not to participate in the markets.
- Federal reserve will seek to inject short term liquidity into the system
- build up short term treasury reserves
- buying into short term treasury bills thereby boosting treasury reserves
- opposed to the standard QE mechanism which entails buying up of assets and securities with longer maturity periods