US Fed cuts rates, signals may not do more

The US Federal Reserve has cut interest rates, but the head of the US central bank says the move might not be the start of a lengthy campaign to shore up the economy against risks including global weakness.

Fed Chairman Jerome Powell cited signs of a global slowdown, simmering US trade tensions and a desire to boost too-low inflation in explaining the central bank's decision to lower borrowing costs for the first time since 2008 and move up plans to stop winnowing its massive bond holdings.

"Let me be clear - it's not the beginning of a long series of rate cuts," Powell said in a news conference after the latest policy statement. At the same time, he said, "I didn't say it's just one rate cut."

Financial markets had widely expected the Fed to reduce its key overnight lending rate by a quarter of a percentage point to a target range of 2.00 to 2.25 per cent, but many traders expected clearer confirmation of forthcoming rate cuts.

US President Donald Trump, who has repeatedly attacked the Fed's policy stance under Powell and demanded it push through big rate cuts, said on Twitter the Fed chief "let us down" by not telegraphing that an aggressive easing was coming.

US stock prices fell during Powell's news conference. The benchmark S&P 500 index closed down 1.1 per cent for the day, while yields on 2-year notes, a proxy for Fed policy rates, rose to 1.87 per cent.

Ken Polcari, managing principal at Butcher Joseph Asset Management, said Powell's message was "not what the market was expecting to hear" even though most traders expected a rate cut.

"He is not shutting the door, but he is also not saying there is another one coming in September, so hold on," Polcari said.

In a statement at the end of a two-day policy meeting, the Fed said it decided to cut rates "in light of the implications of global developments for the economic outlook as well as muted inflation pressures."

It said it will "continue to monitor" how incoming information affects the economy and that it will "act as appropriate to sustain" the expansion.

The Fed's policy decision drew dissents from Boston Fed President Eric Rosengren and Kansas City Fed President Esther George who argued for leaving rates unchanged.

Rosengren and George have raised doubts about a rate cut in the face of the current expansion, an unemployment rate that is near a 50-year-low, and robust household spending.

On the opposite flank was Trump.

"What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world," Trump said after the Fed decision.

"As usual, Powell let us down."

Powell and other Fed officials in recent weeks have walked a middle ground, flagging risks like continued uncertainty on the global trade front, low inflation and a weakening world economy, but repeating the view the United States is fundamentally in a good spot.