Will The Fed Cut Interest Rates? Vice Chair Richard Clarida Hints It's Possible

The vice chairman of the U.S. Federal Reserve Friday left the door open for a possible decrease in the federal funds rate at the end of the month.

Speaking at the Fixed-Income Management 2019 conference in Boston sponsored by the CFA Institute, Richard Clarida said though the U.S. economy is in a good place, “global disinflationary pressures cloud the outlook.”

The remarks, expected to be the last ahead of the October rate-setting meeting, came as the Conference Board reported a second straight dip in leading economic indicators, the latest in a spate of economic reports pointing to a slowing of the U.S. economy.

The Federal Open Markets Committee meets Oct. 29-30 to debate whether to lower the federal funds rate, the rate at which banks borrow money, from the current 1.75% to 2%. The FOMC adopted quarter point cuts at each of its last two meetings in July and September amid deep divisions.

“The U.S. economy is in a good place, and the baseline outlook is favorable,” Clarida said.

He added: “But despite this favorable baseline outlook, the U.S. economy confronts some evident risks in this the 11th year of economic expansion.”

President Trump has been pushing the Fed to cut interest rates to zero or lower to goose the economy, but though Clarida didn’t rule out further cuts, he said the Fed would act only “as appropriate to sustain growth, a strong labor market, and a return of inflation to our symmetric 2 percent objective,” whether that means cutting rates, holding steady or raising them.

The Fed is in the midst of reviewing how it sets monetary policy and is looking for input from labor, business and academics.

Signs the economy is slowing include a drop in manufacturing, slowed payroll growth and evidence consumers are tightening the purse strings.

Clarida’s remarks are the latest in a series of statements by Fed officials pointing to a possible cut.

“Our policy actions have been very helpful to keeping the economy on track and to manage some of the risks we were facing,” New York Fed President John Williams said after a speech Thursday. “Looking forward, I think we just have to take this same approach, this meeting-by-meeting approach.”