US Fed cuts key interest rate a quarter point, citing 'uncertainties'

19 Septembre, 2019, 03:03 | Auteur: Auguste Feret
  • US federal reserve

The market expected the quarter-point cut to the federal funds rate, which influences many consumer and business loans.

Citing the global economic outlook and "muted" inflationary pressures at home, the central bank chose to lower interest rates a quarter of a point to meet a target borrowing rate of 1.75% to 2%.

The economic expansion appears durable in its 11th year of growth, with a still-solid job market and steady consumer spending.

"For now, the US-China trade war shows no sign of slowing, and the Fed will want to cushion the impact of the latest round of import tariffs", said Cailin Birch, global economist at The Economist Intelligence Unit.

Though the United States economy continues growing at a "moderate" rate and the labour market "remains strong", the Fed said in its policy statement that it was cutting rates "in light of the implications of global developments for the economic outlook as well as muted inflation pressures". "No guts, no sense, no vision", the President fumed.

The Fed's quarterly economic forecast also reflects the division among central bankers, as the median forecast calls for no further rate increases through the end of 2020 - holding at 1.9 percent down from 2.4 percent in the June forecasts.

The president has repeatedly attacked the Fed since mid-2018, demanding lower rates to help boost economic growth. But they also suggest that policymakers do not envision a recession.

Two members wanted to hold the rate steady, while one wanted to cut further.

US federal reserve chairman

There was little change in policymakers' projections for the economy, with growth seen at a slightly higher 2.2 percent this year and the unemployment rate projected to be 3.7 percent through 2020.

The EUR/USD pair traded within familiar levels during the first half of this Wednesday, as the market waited for the event of the week, the US Federal Reserve monetary policy decision.

So has a belief that oil prices will remain elevated, that inflation might finally be reaching the Fed's target level and that there are increasing signs that the U.S. economy remains sturdy. "Big Interest Rate Drop, Stimulus!" Too many uncertainties exist, notably the outcome of Trump's trade war.

"A bad communicator", Trump said of Powell in his latest Twitter attack on the central bank and Powell. Powell has said that the policymakers remain focused on sustaining the expansion and keeping prices stable without regard to any outside pressures.

The rate cut could also reduce the interest rates that banks pay out for savings accounts, which are already on average less than 3 percent, encourages Americans to save less and spend more.

USA inflation, which has always been dormant, has begun to show signs that it is reaching the Fed's 2 per cent target and might remain there. Because rates were reduced before the rate cut was announced, financial experts don't expect mortgage rates to drop much more.

In recent days, the Trump administration and Beijing have acted to de-escalate tensions before a new round of trade talks planned for October in Washington.

Analysts at Bank of America Merrill Lynch estimate the Fed will purchase a total of $400bn in Treasuries over the next year.

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