Monetary policy remained squarely in focus last week and, as expected, the Federal Reserve cut the target range for the federal funds rate by a quarter percentage point. According to the FOMC press release, “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 rate to 1-3/4 to 2 percent.
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 percent objective are the most likely outcomes, but uncertainties about this outlook remain.”
The market reaction to the FOMC’s release, press conference, and updated economic projections were somewhat underwhelming. Here are the Fed’s real GDP and unemployment projections going forward:
Uncertainty on the trade front and mixed reports on U.S. manufacturing are still key concerns going forward. As per policyuncertainty.com, the trade policy uncertainty index has been climbing higher lately:
On a positive note, the latest report on U.S. industrial production came in better than expected for August. The Fed reported last week that U.S. industrial output increased 0.6% in August following a 0.1% contraction in July as manufacturing output rose 0.5%, utilities output increased 0.6%, and mine production rebounded 1.4%. Of note, the Fed reports that the U.S. manufacturing capacity utilization rate improved to 75.7% last month as the total industry utilization rate increased to 77.9%.