Washington – The Federal Reserve has cut down the interest rates in a move to preserve America’s record-long economic expansion. This is the first time such a step was taken since 2008, when it was slashed to nearly zero. Speaking in a news conference after the decision, Jerome H. Powell, the Fed chair, said that the move was,” “intended to ensure against downside risks from weak global growth and trade tensions.”
Unlike the rate cut in 2008 which was about rescuing the economy, this cut is to shield the US from the effects of slow growths in China and Europe and the uncertainty looming over President Trump’s trade war. The move was already expected but the market was hoping for a bigger cut. Donald Trump had demanded a larger cut to boost the economic growth.
Trump tweeted his response to the rate cut and expressed his disappointment with the move taken by Powell.
….As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!
— Donald J. Trump (@realDonaldTrump) July 31, 2019
It seems that Powell and his team has chosen to walk on a middle path without taking any aggressive measures. As of now, the Fed lowered the lending rate to a range of 2 percent to 2.25 percent. Mr. Powell added that,” “The outlook for the U.S. economy remains favorable, and this action is designed to support that outlook.”
He also mentioned that the Fed will be guided only by the economic signals and will, “never take into account political considerations.” Two members of the Fed committee responsible for the rate-setting voted against the rate cuts.
While the Fed suggested that the move was a small step to safeguard the economy, it kept the door open for further cuts in the future by mentioning that it will “continue to monitor” the situation. “It’s not the beginning of a long series of rate cuts — I didn’t say it’s just one,” said Mr. Powell. It can be mentioned that in between December 2016 and December 2018, rates were raised eight times by the Fed.
The move set out ripples in Wall Street as the stock market plunged. Some observers of the market believe that this can have a long lasting effect on the US and global markets in the coming days.
The US economy is showing a modest pace of growth at present and the unemployment rate is almost at a 50 year low of 3.7 percent. The rate of consumer spending is quite strong even though the investments have dropped to some extent. The Fed also said that this rate cut will help to bring the inflation within the 2 percent target mark but experts remain uncertain about that claim.