The battle over the Federal Reserve interest rate has raged for many months now, and likely will continue too. But today, we entered a new phase of that battle.
The Fed announced today that they would be lowering interest rates another quarter of a percentage point. The move comes amidst growing uncertainty about America’s economic future, and answers in part the President’s constant complaints about the policy of Chairman Jay Powell and his peers.
Another Cut, More Questions
The Fed announced Wednesday afternoon that they would be cutting interest rates another quarter of a percent, for the second time since July. The rate, correlated to the cost of mortgages, credit cards, and other loans, will now rest between 1.75 percent and 2 percent.
Chairman Powell’s explanation for the decision was simple: “we took this step to keep the economy strong,” he said during his press conference.
In an economic climate of uncertainty, there is increasing tension between policymakers and even the members of the Fed itself. They remain divided on the best path forward to forestall economic decline. And President Trump has been the loudest voice for swift and decisive action. But Chairman Powell has been resistant to those demands.
“Generally Fed participants think [our goals] will be achieved with modest adjustments to the federal funds rate,” Powell said. But he left the door open for more dramatic cuts in the event of a real economic downturn:
“If the economy does turn down, then a more extensive series of rate cuts could be appropriate.” Reassuring investors, he clarified: “we don’t see that. We don’t expect that.”
The Markets Respond
Hoping for a more extensive cut, many investors panicked at the initial release of the news. The Dow Jones cratered, dropping just-shy of 200 points between 2:00 and 3:00 PM. But it steadily climbed and finished back in the green, currently up 36.28 points on the day shortly before the close.
The Nasdaq saw a similar crater mid-afternoon and has also steadily climbed, though it is not yet out of the red, currently down 0.11 percent on the day. The map looks identical for the S&P 500, though it, like the Dow, is currently back in the positive.
“Markets were already pricing in a 25 basis-point cut, and what they wanted to learn was whether there would be more cuts in the future,” Shawn Cruz, at T.D. Ameritrade told MarketWatch. “The details we got out of the meeting and the tone of the press conference told us it’s not a sure thing that we’ll see a continuation of stimulus.”
Traders seemed encouraged by Powell’s promises to the contrary in the press conference, and trading returned to normal by the end of the day.
Even so, there’s no question the markets are uncertain right now. With the looming election, the growing concern about recession, and international trade and tariff factors, it’s a difficult time to be a trader. Those reasons have caused many analysts to expect another cut before the end of the year. We’ll keep you posted on any news from the Fed in the coming days and months.