Cutting against the grain
Ordinarily, the Federal Reserve doesn’t cut interest rates when the economy is going gangbusters, but that’s what happened yesterday.
The cut, which brings the rate to between 2 and 2.25 percent, was the first since 2008 when the central bank repeatedly dropped it from 3.5 percent to near zero in an attempt to boost lending in the depths of the Great Recession.
The interest rates set by the Fed have downstream effects on auto loans, mortgages, student loans, business loans – pretty much all manner of borrowing undertaken to build lives and businesses. It’s dry stuff, but it can make a big difference for individuals and the economy as a whole.
The Fed cloisters its decisions from public view and makes pains to insulate itself from political considerations, but President Donald Trump has been banging the drum for the Fed to lower rates to further juice the market.
In a news conference Wednesday, Powell said the cut is “intended to ensure against downside risks from weak global growth and trade tensions,” according to The New York Times, which reported that market players and Trump had been hoping for a bigger cut in the rates.
Trump famously launched a trade war with China, the world’s second-largest economy, and he has also sparked trade skirmishes, imposing tariffs on smaller countries, including allies. The president has celebrated China’s lagging growth, attributing its economic troubles to his tariffs and seemingly ignoring the effect a weak Chinese economy would have on business here.
The glee over the import taxes imposed on Chinese goods seems to stem from Trump’s stubborn assertion that Chinese companies bear the cost of those tariffs. It’s true that Chinese companies suffer from the higher price of their products sold in the United States, but American consumers pay the import taxes.
Nevertheless, the Trump administration acknowledges the trade war with China has caused some financial distress, which is why the federal government is doling out billions of dollars to farmers bearing the brunt of new market barriers.
While Trump has unilaterally raised taxes on products imported into the United States, less than two years ago he signed into law a roughly $1.5 trillion tax cut that slashed the corporate rate from 35 percent to 21 percent. While ballooning the federal deficit, that federal tax cut was projected to stoke a national economy that was already enjoying long-term robust growth coming out of the recession. The Tax Policy Center projected the tax cut law would increase federal debt and also increase gross domestic product.
While GDP dropped a bit earlier this year, the economy is still growing and the national unemployment rate stands at a historic low of 3.7 percent. The Times suggested those factors, along with a nascent rise in wages, may be why Eric Rosengren, the president of the Boston Fed, and Esther George, the president of the Kansas City Fed, both opposed Powell’s decision to drop rates.
In Massachusetts, economists might feel even more cognitive dissonance than their counterparts around the country. Cuts to the Fed rate are typically made to keep economic activity humming during rough patches, but the Bay State’s unemployment rate is 3 percent, and on Wednesday Gov. Charlie Baker agreed to all of the spending included in the more than $43 billion state budget – even the $600 million added late in the game.
A first: Gov. Charlie Baker signed a budget without any spending vetoes. And, in another first, the Republican governor doesn’t balk at any of the Democratic Legislature’s earmarks. (CommonWealth)
Attorney General Maura Healey says it’s time to put an end to the state’s whack-a-mole electricity sellers, who promise savings but don’t deliver. (CommonWealth)
Sen. Eric Lesser of Longmeadow calls for the removal of a Registry of Motor Vehicles official and Baker says he was astounded to learn the problems at the RMV have been going on for 20 years — long before he arrived in the governor’s office. (CommonWealth) Questions are being raised about what Baker and top aides knew and when they knew it in the unfolding RMV scandal. (Boston Globe) The buck never stops with Baker, says Joan Vennochi, who questions whether the governor’s “super manager” reputation is matched by results under his watch. (Boston Globe)
Baker and the Legislature eliminate the state’s unique offshore wind price protection. (CommonWealth)
The Bay State lobster industry, which has had to ship its catch for processing in Maine or Canada, can now process raw lobsters and import raw, shell-on lobster parts under the budget that Baker signed. (Gloucester Daily Times)
As usual, lawmakers send Baker a simulcast racing extension at the last moment. (State House News)
The House passes legislation requiring the Department of Children and Families to provide more reporting on foster children and also passes a child wellness bill. (MassLive)
Gov. Charlie Baker, who has defended the existing exemption his office and the Legislature enjoy from the state’s public records law, was not moved to change his stand by the Herald’s report on nearly $5,000 of recent House spending on Chinese takeout food.
Joyce Linehan, Mayor Marty Walsh’s policy advisor, testifies at the Boston Calling corruption trial that she thought city officials were placing unfair demands on music festival, including that it hire union stagehands. (Boston Globe)
The stench coming from the Eastman Gelatine Plant, which converts animal skins and bones into gelatin, has been overpowering recently, which led the Peabody Board of Health to fine the manufacturer. (Salem News)
Tewksbury Police Chief Timothy Sheehan is a finalist for police chief in Palm Bay, Florida. (Lowell Sun)
A new affordable rental complex has opened in South Yarmouth, lauded by Lt. Gov. Karyn Polito as a “step in the right direction.” (Cape Cod Times)
Congressman Richard Neal intends to seek President Trump’s tax returns from the Internal Revenue Service, which has resisted the request, not through a process created by a recent New York state law. (WGBH)
WBUR checks in with the two newest members of the Massachusetts congressional delegation, Ayanna Pressley and Lori Trahan, two former Capitol Hill staffers who have worked together in the tumultuous months since they took office.
Joe Biden and Kamala Harris both get targeted by fellow candidates in the second night of Democratic presidential debates. (Washington Post) New York Times columnist Frank Bruni says Biden did better than the last debate, but still looked like the guy who faltered in two previous presidential runs. Joe Battenfeld says it’s all over for moderates in the party — and for any chance of beating Donald Trump next year. (Boston Herald)
Ranked-choice voting may be headed to the 2020 ballot (State House News)
US Rep. Richard Neal and his challenger Holyoke Mayor Alex Morse get into it over the state of the Holyoke schools, which are in state receivership. (MassLive)
The Boston region is adding new jobs faster than new housing units, part of the explanation for the continued rise in housing costs. (Boston Globe)
The New York Times spotlights the ruinous fire — and determined rebuilding effort — at the Treadmark condo and apartment complex, which is now open in Dorchester’s Ashmont neighborhood.
On top of its other many challenges, General Electric could be facing trouble with labor unions representing its workers. (Boston Globe)
The state education department’s 2014 change in how it tallies economically disadvantaged students has created some complications for those working on school funding and tracking student performance. (WBUR)
The state Department of Public Health announced Carver, Easton, Freetown, Lakeville, Middleboro, New Bedford and Raynham are on high alert for eastern equine encephalitis virus, a deadly mosquito-borne disease. (Brockton Enterprise)
New Bedford is replacing a 70-year-old municipal pumping house as a part of a 18-month, $8.4 million project funded through the Department of Environmental Protection’s State Revolving Fund program. (Standard Times)MARIJUANA
The Dorchester Reporter introduces Kobie Evans and Kevin Hart, the owners of Boston’s first recreational marijuana shop, Pure Oasis.