WASHINGTON — For a second straight time, the Federal Reserve is set to cut interest rates this week to try to protect the economy from the consequences of a global slowdown and President Donald Trump’s trade war with China.
After that, no one — not even the Fed itself — seems sure what it will do. The economic landscape looks too hazy and vulnerable to unexpected events, like oil price spikes resulting from the weekend attack on Saudi Arabia’s oil production facilities.
Among the key questions:
Will Trump achieve at least a truce in his conflict with China and diminish a threat overhanging the U.S. economy?
Will Britain avoid a disruptive exit from the European Union that would destabilize the global economy?
Is U.S. inflation, dormant for years, finally starting to reach the level the Fed has long targeted? Could a surge in oil prices even send inflation to heights that would make the Fed uncomfortable about cutting rates? Or would higher energy prices make the officials more fearful of a global downturn and so more inclined to cut rates?
The answers to those uncertainties will influence the Fed’s decisions in the coming months on whether it needs to keep reducing borrowing rates to try to help sustain the U.S. economic expansion now in its 11th year.
It might not matter much in any case. With rates already ultra-low, few economists think a further modest drop in borrowing costs would provide much economic stimulus. Still, the financial markets are anticipating not only a quarter-point rate cut on Wednesday when the Fed ends its latest policy meeting but one or more additional cuts later this year.
On Monday, Trump linked the oil attack and the Fed’s rate decision, saying that after “the oil hit,” the economy needs “Big Interest Rate Drop, Stimulus!”
But some analysts think the Fed might react to Trump’s rising demands for steep rate cuts by making explicitly clear that it’s keeping its focus on the economy.