The Fed is doing its best to prop up the U.S. economy in the face of possible economic turbulence, but it's beginning to look like a rudderless ship and it's fast losing the confidence of investors.
Driving the news: The Fed's rate-setting committee cut U.S. interest rates 25 basis points as expected on Wednesday, but did so with 3 dissenting votes for the first time since 2016.
- The central bank's projections for future policy showed even more discord — 7 members of the 17-member committee said they expect to cut rates again this year, while 5 expect rates to remain at their current level and 5 see rates rising again later in the year.
- It was a "forceful pushback" against the rate cut, Goldman Sachs economists Jan Hatzius and David Mericle said in a note to clients, and could portend a tougher road for policy action in the future.
- "[T]he internal inconsistency ... is a reflection of the current divisions within the Fed," said Joseph Brusuelas, chief economist at RSM.
Between the lines: The Fed's more esoteric announcements were even more disappointing and confounding, investors said.
- The rate cut — typically a sign of economic turmoil — was accompanied by expectations for higher GDP growth this year in the summary of economic projections.
- Measures intended to stabilize the repo market by lowering key reserve rates were almost universally criticized by economists and money managers, many of whom called it a "Band-Aid" that failed to address the festering problems in the structurally important market.
- To wit, the New York Fed announced it would need to inject up to $75 billion into the repo market today after losing control of its own interest rate and needing $128 billion of liquidity injections Tuesday and Wednesday.
The big picture: President Trump's trade war, constant criticism and demands for low interest rates have put the Fed in a bind, but Fed chair Jerome Powell and co. are not helping their cause either.
- This is the latest example of the Fed surrendering global leadership on monetary policy.
The last word: "The Committee missed an opportunity for a bolder stance that might have provided greater insurance against international risks to the economy," Rick Rieder, CIO of global fixed income at BlackRock, said in a note.