For the second time in 2019, the Federal Reserve cut interest rates. The cut of 0.25% to a 1.75% – 2% range from its previous 2% – 2.25% was widely anticipated. However, the Fed’s hawkish move failed to hurt the US Dollar which closed higher against all major currencies in the North American trading session.
It was the second interest cut since July as the US was showing it was prepared to make moves to stop the world’s largest economy from slowing further.
The cut, having already been 95% priced in by market analysts and traders, was only half the story as investors proved more interested in the Fed’s monetary policy statement, its economic projections and the press conference from Fed Chairman Jerome Powell.
Divisive Fed Decision
Two Fed members, Esther George and Eric Rosengren, voted against the interest rate cut, Meanwhile, James Bullard voted to cut interest rates further, favouring a 50bps reduction. In total, five members were not in favour of cutting rates yesterday. Five members approved the cut but see no further easing in 2019. Seven Fed members anticipate one more interest rate cut before the end of the year. This was most dissents for a Federal Reserve decision since December 2014.
To many’s disappointment, Fed Chairman Jerome Powell only gave limited insight into policy changes in the future. The policy statement was in almost identical language from that used in the July statement. July saw the first rate cut in 11 years. It comes at a time when signs are showing that the US economy is weakening amidst a general global economic downturn. The FOMC once again cited “the implications of global developments for the economic outlook as well as muted inflation pressures” for the rate cut.
However, the Fed did say that household spending is “rising at a strong pace.” The US economy is nearly two-thirds driven by consumer spending. However, exports have weakened as Trump has escalated trade war talk around the world, especially with China.
Attention now turns to other Central Bank moves over the coming week.
