Federal Reserve Cuts Interest Rates by 1/4 Point

Check out the clip from Fox News on “Your World” with Neil Cavuto for our discussion on the issue. 

In their September decision, the Federal Reserve decided to cut interest rates by 1/4 point, citing ongoing trade war tensions and a slowing, global economy.

The Fed noted in the decision that the current economic backdrop of an ongoing trade war is an unprecedented situation, and they don’t have past data that would assist them in adjustments to monetary policy in this instance. As such, they are continuing to monitor economic data, and will “act as appropriate to sustain the economic expansion.”

While the Federal Reserve was split in this decision, with several members noting that they didn’t believe a rate cut was necessary, the majority voted for the cut. They also noted this isn’t the beginning of a larger quantitative easing cycle, and would examine economic data going forward to determine if more cuts were necessary later this year.

They also noted the slowing economic situation across the world, particularly in Europe and China, and the likelihood that will bleed into the US economy. While the US economy remains strong, with low unemployment, rising wages, and strong consumer spending, a global slowdown could potentially impact the US economy in the future.

As for the stock market, investors have been anticipating a rate cut, and for that reason, the stock market traded higher into the decision and afterwards as well. In general, the stock market likes lower rates, and rate cuts, because with cheaper interest rates, money is freed up to be invested or spent. Lower rates spurs economic growth, and as such, the stock market is a fan.

My main caution here is that traders are focusing on this one decision – and not looking at the bigger picture. The Federal Reserve cut rates because of a threat of a slowing economy. So, while the stock market liked the cut, there are still clouds overhead. I’m watching the overall economic picture as well as the stock markets reaction to changing conditions. If the economic situation continues to deteriorate, we will seem more rate cuts, which would be a continued effort to sustain the current strength of the economy.

 

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