US Federal Reserve Bank cut rates by a quarter basis points. However, the impact of the rate cut was different from expected norms. What gives?
US Fed Rate Cut
“This is a mid-cycle adjustment to hopefully get the economy moving again. The evidence in my eyes tell me that our policy does support confidence, economic activity, household, and business confidence through channels we understand. It will lower borrowing costs and it will work.” ~US Fed Chairman Jerome Powell
- US rate cut by 25 basis points (-0.25%) which is the 1st rate cut since 2008.
- Rate cut not expected to be indicative of long term cuts but as insurance against downside risks.
- Rate cut less than Trump’s demand for a 50 basis points (-0.50$) cut.
….As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!
— Donald J. Trump (@realDonaldTrump) July 31, 2019
Not Quite Business as Usual
- The US Dollar rallied after the rate cut instead of dropping.
- USD rallied as rate cuts viewed positively coupled with Powell’s positive comments on US labor market strength, increase in retail sales, and economic resilience.
- Stock market dropped with the Dow dropping (-330 points) instead of rallying (reduced borrowing costs is viewed positively for businesses) as investors perceived that there may be macroeconomic concerns.
You May Also Like
- Not all rate cuts are equal (thomsonreuters.com)
- MyPF forex guide
- US market update 2019 mid-year
- Successful investing is often boring
Leave A Comment