Fed Cuts Interest Rates, Worried About ‘Global Developments’

Kevin Mwanza
Written by Kevin Mwanza
federal reserve
Federal Reserve Chairman Jerome Powell speaks during a news conference following a two-day Federal Open Market Committee meeting in Washington, Wednesday, July 31, 2019. The Federal Reserve cut its key interest rate for the first time in a decade to try to counter threats ranging from uncertainties caused by President Donald Trump’s trade wars to chronically low inflation and a dim global outlook. (AP Photo/Manuel Balce Ceneta)

The Federal Reserve cut its benchmark rate by a quarter percentage point, a first since the 2008 financial crisis, in what it said was in line with “global developments” on the back of moderate growth and a strong labor market.

Fed Chair Jerome Powell said the rate cut was a short-term move and the committee did not see the type of marked economic weakness that would necessitate a longer rate-cutting cycle.

“The low inflation allows the Fed some latitude to take preemptive steps and hopefully avoid moving in the future to something like negative rates,” Mark Haefele, global chief investment officer at UBS Wealth Management, told CNBC.

Stocks dipped, the dollar gained to a two-year high and bond yields edged higher in the wake of the Fed rate decision, which went against the stronger economic data that has been filtering into the markets in recent weeks.

Listen to GHOGH with Jamarlin Martin | Episode 64: Tunde Ogunlana

Part 1: Jamarlin talks to Tunde Ogunlana, the CEO of Axial Family Advisors, a wealth planning firm. We discuss what an inverted yield curve usually means in the bond market and why Federal Reserve Chair Jerome Powell can’t tell the public the truth when he sees big trouble on the horizon. We also discuss the global economy being trapped between massive debt and a starting place of low rates at the end of the economic cycle. This episode was recorded on May 29, 2019.

Powell’s announcement in a press briefing that the Fed’s action was a “midcycle adjustment to policy” sent markets reeling, CNBC reported.

“I think by that it means he doesn’t necessarily mean more cuts are coming, maybe not necessarily one-off but not indicative of more aggressive cuts,” Ben Jeffery, a fixed-income strategist at Bank of Montreal, told CNBC.

President Donald Trump, who had been looking for a half a percentage point cut and criticized Powell and his fellow policymakers for their hawkish stance, tweeted about his disappointment after the decision was taken.