Pennsylvania Trust

Fed Cuts Rates As Expected

Fed Cuts Rates As Expected

The Fed lowered the Federal funds rate target by 25bp to 1.50-1.75% at its meeting that concluded today.

The rate cut is an insurance policy against the risks stemming from the trade war and trade-related uncertainties, the U.S. and global industrial slump, geopolitical issues, and the slowdown in global growth. Persistently low inflation has afforded the Fed the flexibility to ease policy.

Fed Funds futures are now estimating that the Fed will now remain on hold indefinitely. Being said, this mid-cycle adjustment has lowered rates by 0.75% over three periods.

Comments of Guidance (it seems as if the Fed has strongly hinted it does not want to move rates again in the near future):

  1. The Fed revised the forward guidance in its Policy Statement from “act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective” to “continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”
  2. Chair Powell stated in his press conference that, “the current stance of monetary policy is likely to remain appropriate, as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective. We believe monetary policy is in a good place to achieve these outcomes.”

 


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