United States interest rates cut for first time in decade

United States interest rates cut for first time in decade

The Federal Reserve cut the upper range of its core lending rate, known as the federal funds rate, to 2.25 per cent.

US President Donald Trump is likely to be disappointed that the Fed did not deliver the large rate cut he had demanded. Sustained expansion of economic activity and a stronger labour market are also the most likely outcomes, it noted.

The Fed also announced plans to end the reduction of its $3.8 trillion asset portfolio, effective August 1, two months earlier than previously expected.

In June, Powell began to make the case that the Fed, like other central banks, around the world needed to act earlier to get ahead of any economic weakness especially given how low interest rates now are - a reversal from his previous stance.

"Uncertainty toward the timing and scope of additional action leaves markets more sensitive to signals of future policy measures than the well-telegraphed rate cut looming at present".

Kansas City Fed President Esther George and Boston's Eric Rosengren voted against the cut. Or does the Fed's strong messaging for the possibility of rate cuts warrant more stimulus (50 basis points)? It was the first time since Powell took over as chairman in February 2018 that two policy makers dissented. It's unclear how much opposition even a quarter-point cut will face within the FOMC, or what signal will emerge about the scope for further easing. Prices of short-term USA government bonds fell after the announcement, sending yields higher.

Underlying both questions are uncertainties about just how much the USA economy is likely to slow and how monetary policy should respond.

The move would come despite a strong U.S. economy. The trade dispute was blamed for a manufacturing slowdown and the first drop in business investment since 2016.

Federal Reserve Board building on Constitution Avenue is pictured in Washington, U.S., March 19, 2019.

Mr Powell warned that global growth had been "disappointing",. When the PBOC has mirrored Fed moves, the decision shows up in the daily open-market operation notice just after 9am.

Trump is unlikely to be satisfied as he puts the economy at the heart of his re-election bid. But the president's incessant criticism raises the question of whether the attacks could eventually undermine confidence that the Fed will remain politically independent and not try to boost the economy before next year's presidential election.

If the Fed cuts rates two or more times this year, top yielding accounts will likely move from about 2.5% closer to 2%, McBride says.

He may also get questions on whether the Fed would join the US government in intervening to weaken the dollar to aid USA exports after Trump told reporters last week that he had not ruled it out.

While Trump and some investors wanted the Fed to be more aggressive, its scope for doing so is limited. Eastern Time, then turned lower about half an hour later. Unemployment hit a 49-year low in May and was at 3.7% last month. The Fed has not reduced interest rates since 2008, when it essentially dropped rates to zero to cope with the fallout from the financial crisis. Officials indicated as recently as December they meant to continue to hike this year.

The initial reaction in the financial markets Wednesday was muted.

Some even worry that the central bank will be taking a needless risk: By cutting rates now, the Fed is disarming itself of some ammunition it would need in case the economy did slide toward a recession. Those in India, South Africa and Australia are among those to have cut this year.

It's a stark reminder that fiat money can be manipulated at will by central banks.

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