Although the US economy was resilient in the third quarter, the Fed, worried by international uncertainties, again cut interest rates on Wednesday (October 30th).
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Once is not customary, the US President, Donald Trump, did not react to the announcement by a volley of coarse Tweet, criticizing the institution for not doing enough. On Wednesday, October 30, the Federal Reserve (Fed) lowered its key rates by a quarter point: they are now in the range of 1.50% to 1.75%, against 1.75% to 2% until then . This is the third drop this year, partially erasing the four rises last year. Monetary policy is "At the right level", said Jerome Powell, president of the monetary institute, during his press conference. A way to make it clear that the Fed is now planning to pause.
Even if the unemployment rate (3.5%) is at a historically low level, the monetary policy committee nevertheless believes that the sluggishness of inflation and the doubts weighing on the international economic situation justified a new easing. But the decision is not unanimous in its ranks. In fact, two of its ten members believe that the American economy, in good shape, hardly needed a new dose of monetary morphine.
Consumption marks the pace
It is true that the figures published a little earlier by the Department of Commerce have enough to make any European government jealous: in the third quarter, the US gross domestic product (GDP) grew by 1.9%, in annualized rhythm. This is better than the 1.6% expected by the consensus of economists, even if the trend slowdown in growth is confirmed – in the first and second quarters, GDP grew respectively by 3.1% and 2%.
Household consumption, the main driving force of activity, was a bit slower (+ 2.9%, compared to 4.6% in the previous quarter), while federal spending jumped 3.4%. Above all, the residential real estate market grew by 5.1%, its strongest growth in two years, boosted by previous rate cuts.
Business investment, on the other hand, sends worrying signals: it fell by 3% in the third quarter, its biggest decline in three years. "This is the first contraction of more than 1% since 2009, reflecting weaknesses in global demand, rising customs barriers, high political uncertainties", Gregory Daco from Oxford Economics reports in a note on the subject. Worse, investment in productive capacity fell by 15.3%, after the already sharp decline of 11% in the second quarter. "Under these conditions, growth should hardly exceed 1% in the fourth quarter", Judge Andrew Hunter, from Capital Economics. "The economy should avoid the recession in 2020, but will regain its long-term pace, around 1.6%"adds Arthur Jurus, chief economist at Landolt & Cie.
