FED cut rates by 25 basis points for the third time this year

on Oct 30, 2019
Updated: Mar 11, 2020
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  • U.S policymakers decided in favor of cutting rates by 25 basis points for the third time this year.
  • FED expected to pause the monetary policy for a while and evaluate effects on U.S economy at large.
  • President Trump applauded negative rates in Japan & Europe, and suggested FED to cut rates to zero.
  • Inflation reported under the 2% target and unemployment at a record low in fifty years.
  • Consumer spending noted as solid but private business investments reported to be dawdling.

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The FOMC (Federal Open Market Committee) statement released at 18:00 GMT has reported that the U.S policymakers have decided in favor of cutting the rates by 25 basis points for the third time this year. The statement has further expressed that FED is now expected to pause the monetary policy for a while, during which time, it will thoroughly evaluate the short- and long-term impact of the rate cuts on the U.S economy at large.

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Rate Cuts Are Directed At Continuous Economic Expansion

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Jerome Powell, current chair of the Federal Reserve, remarked that the global economic slowdown and the ongoing trade tensions have weighed down the economy. Easing the monetary policy in three consecutive meetings was a necessary evil to ensure continuous economic expansion in the long run.

He has further pointed out that the strategy has worked well for the U.S economy so far. While there’s only so much that it can do in terms of the trade scenario, it has ensured a consistent decline in unemployment while securing favorable figures for consumer spending. The lower mortgage rates have also given a new impetus to the housing market.

Hours before the FOMC statement, the U.S Department of Commerce announced a 1.9% growth rate (annualized) for economic activity that beat the estimate by 0.3%. The report noted the consumer spending to have remained solid but the private business investments were highlighted as dawdling.

President Trump Wants FED To Cut Rates To Zero

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With further leniency in monetary policy, the Federal Reserve expects to revive the investors’ confidence. The decision, however, hasn’t met with all praises. Esther George and Eric Rosengren, Fed Presidents for Kansas City and Boston respectively, have expressed their dissent and remained in favor of keeping rates unchanged. President Trump had also criticized the Federal Reserve earlier this month. He applauded the central banks of Japan and Europe for applying negative rates and suggested that FED should also cut rates to zero.

As per the statement, the Federal Reserve remained focus on the positive outlook. Officials were reported calling the labor market “strong” while pointing at a record low for unemployment in the past fifty years. Household spending was reiterated to be growing at a reasonable pace. On the downside, they noted exports and business fixed investments to have remained weaker.

The softness, FED’s officials added, has manifested in terms of weaker data for the manufacturing sector. In combination with the fading confidence of the investors, the weak manufacturing data can translate into a drop in consumer spending. Labor Department’s employment report for October is set to be announced on Friday.

According to the FED officials, inflation has remained well under the 2% target.

The forex market has responded generously to the FED’s announcements. After falling briefly to the 1.1080 level, EUR/USD has posted a gain of around 0.30% and is currently trading at 1.1150. At the time of writing, “Cable” is exchanging hands at 1.2900 level.

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