Fed move reflects concern at uncertainties: China Daily editorial

The US Federal Reserve on Wednesday announced its decision to cut its key overnight lending rate by a quarter of a percentage point to a target range of between 1.50 percent and 1.75 percent. The reduction is a sign of caution by the US monetary policymakers given the continuing economic uncertainties both in the United States and worldwide.

"We took this step to help keep the US economy strong in the face of global developments and to provide some insurance against ongoing risks," Fed Chairman Jerome Powell told reporters at a news conference.

Although the US economy has fared largely well in recent years, the country’s manufacturing activities have weakened in recent months. And the latest data show that GDP growth in the third quarter had slowed to 1.9 percent, down from 2.1 percent and 3.1 percent in the first and second quarter, respectively.

And looking beyond the US, to the world as a whole, the International Monetary Fund said in the economic outlook it released this month that the global economy may expand by 3 percent this year, the weakest in a decade, with 90 percent of the world experiencing a growth downshift.

The World Bank is even more pessimistic, downgrading its growth forecast of the world economy this year to 2.5 percent in October from 2.6 percent in its previous forecast.

With growth slowing, trade weakening, and manufacturing production softening, it is evident that the world economy is facing its biggest challenge since the global financial crisis. Especially, since policymakers around the world seem to have run out of effective tools to boost growth.

Many countries resorted to quantitative easing and other measures to prop up their economies in the wake of the global financial crisis. Although the crisis was contained, the crisis-combating measures have led to unwanted side effects such as soaring debt levels, meaning the room for further fiscal and monetary maneuvers has become limited.

There is therefore no choice, and economies worldwide should bite the bullet of daunting but necessary domestic reforms, while joining hands to support free trade and economic cooperation.

Powell said in his news conference that a potential trade agreement between the US and China, if signed and put into effect, would reduce the risk and "bode well" for business confidence and activity over time.

So it is to be hoped that the deal is still going ahead as anticipated and that the cancellation of the APEC meeting in Chile, where a "phase one" deal was due to be signed, is merely a hiccup and not a harbinger of hopes being dashed that something would finally be set down in black and white.