Fed cuts interest rates by a quarter point
The US Federal Reserve cut interest rates for the first time since the financial crisis this evening, as it cited signs of slowing global growth for the highly-anticipated move.
The central bank lowered its main federal funds target rate by 25 basis points (0.25 percentage points) to between two and 2.25 per cent, making borrowing cheaper in the world’s largest economy.
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It also suggested the potential for more cuts in the future.
“Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft,” the Fed said in its statement this evening.
It added: “In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 per cent.”
A normally consensus-driven approach was shaken up by dissent from two of the Fed’s 10 rate-makers, Boston Fed President Eric Rosengren and Kansas City Fed President Esther George, who both argued for leaving interest rates unchanged.
Market players had largely priced in the probability of a 25 basis point cut, though a minority had expected a deeper cut of 50 basis points.
The Fed’s move comes against a backdrop of unprecedented political pressure from President Trump, who has been urging the body to ease monetary policy.
Earlier this week US President Donald Trump doubled down on his push for a bigger reduction, tweeting: “A small rate cut is not enough, but we will win anyway!”
While economic growth in the US has been outperforming its peers and unemployment has hit record-lows, US manufacturing has flagged under the pressures of a global slowdown.
Nancy Curtin, chief investment officer at Close Brothers Asset Management, said: “It is a significant departure from Powell’s focus on tightening last year, and indicates the Fed’s pragmatism and flexibility when it comes to reacting to the data.”
She added: “No doubt President Trump will likely claim credit for the change following months of tireless pressure to cut rates in order to boost growth, but this was a prudent move.”
Hopes for a resolution to the trade tensions were given a small boost today when Washington and Beijing called talks “constructive”.
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The White House said China had confirmed a commitment to buy agricultural products following the talks, which took place in Shanghai yesterday and today.
US President Donald Trump had yesterday accused China of reneging on promises of purchases, saying “they just don’t come through”.