First Fed rate cut since 2008 fails to ignite markets

Andrew Cummings
August 4, 2019

The S&P 500 had fallen as much as 1.8% intraday after the Fed chairman said the Fed hasn't ruled out further cuts.

Traders increased bets on Fed cuts to another half point this year.

The economy is far healthier now despite risks to what has become the longest expansion on record.

There's no doubt that the reporter questions were created to flesh out something more juicy from Powell but in his best efforts to not take the bait, he gave out a frantic message by not wanting to dive into the "insurance cut" vs. easing cycle debate.

Wall Street closed with losses of over 1%, hurt by the FOMC's less than aggressive easing tone, earnings, worries over the trade talks with China, and the Fed's stress on the spillover from weakness overseas.

Most credit cards come with a variable rate, which means there's a direct connection to the Fed's benchmark rate.

Of course, Donald Trump has ignored this advice but, as we've all learnt, Donald is a very unusual kind of guy.

The interesting takeout from the press conference was that the Fed isn't as anxious about the U.S. economy as others, which is why it doesn't have a programme to have a number of cuts.

The US Federal Reserve has cut interest rates for the first time in more than a decade in an indication that the world's largest economy is running out of steam. It accumulated these holdings during the crisis and has been gradually shrinking the balance sheet since the recovery.

The Fed's action Wednesday was approved 8-2 vote, with two dissents: Esther George, president of the Fed's Kansas City regional bank, and Eric Rosengren, head of the Boston Fed, wanted to keep rates unchanged. Fundamentally, another interest rate cut from the RBA is expected before the end of the year - most likely in October. It's happening in countries from Turkey to India - leading some investors and economists to fret about the future of central-bank independence. Some companies have put off plans to expand and invest. Now I damn well hope he's right about the USA economy not being so challenged that it needs a series of cuts.

Powell has also expressed concern about undesirably low inflation. Yet Mr. Powell felt that a recent slowing in business investment and manufacturing activity in the United States and overseas called for a dose of financial support, and that it was safe to administer it given persistently low inflation.

However, according to Powell, . the decision to cut rates was not affected by Trump's constant criticisms, but instead done in the hope it boosts the US economy in the face of a global economic slowdown.

Powell has repeatedly said the central bank makes decisions independently from markets and the White House. 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.

The S&P 500 index rose 3 points, or 0.1%, to 3,016. Although it expects a steady economic expansion, it pointed to "uncertainties" around this outlook.

Although he tried to walk back on it a little as mentioned above, it couldn't have been clearer and with two Fed members even dissenting, it's hard to see the appeal for more "adjustments" unless economic data deteriorates significantly in the coming months.

Mortgage rates and savings rates were already historically quite low.

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