Pivotal Interest Rate Cut by Fed

The Federal Reserve cut interest rates for the third time this year and explicitly indicated that the moves to ease policy could be approaching a pause and it wouldn’t condense them further unless the economy slowed sharply. Fed Chairman Jerome Powell believes that the current stance of the policy is likely to remain appropriate as long as the economy expands moderately and the labor market stays strong.

The US central bank announced its decision to cut its key overnight lending rate by a quarter of a percentage point to a target range of between 1.50 per cent and 1.75 per cent. Their aim to take this step is to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks. The yield on the 10-year Treasury note is now down to 1.77% from 1.80% and the US dollars gained. While lower rates do little to combat the uncertain trade picture, unemployment has continued to drop, consumer spending has remained solid and lower mortgage rates have revived the housing market. In addition to the solid performance in the jobs market and in consumer spending, stock market averages are around new highs.

But this plunging might come off as a disappointment to Mr. Trump who has pushed hard for the Fed to keep cutting rates and to resume the quantitative easing program the central bank used during and after the financial crisis to stimulate the economy. Two of the Fed's policymakers dissented from the decision: Regional presidents Esther George of Kansas City and Eric Rosengren of Boston voted against a reduction, with both maintaining the stance that the committee should have held the line at the previous rate. With the US economy showing solid economic growth in the third quarter, market participants are debating whether or not another interest rate cut is necessary.

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