Fed Cuts Rate by 25 Points

As previously reported and anticipated, the Federal Reserve cut rates for the first time since 2008.  Citing a weak global economy, the Fed lowered their benchmark rate from 2.25% to 2%.  After the cut, stocks fell – the Dow plummeted more than 400 points. 

Federal Reserve Chairman Jerome Powell said in a press conference today that the cut is an adjustment to the current market conditions.  He left the door open for possible rate cuts noting the Reserve will “act as appropriate to sustain the expansion”.  The current US economy is growing but moderately.  The unemployment rate is still at an all time low at 3.7%.  Spending has gone up and consumer confidence has been recovering. 

However, the US-China trade war is still on-going and could damper our economy.  As mentioned previously, US manufacturing is in a recession.  The tariffs are hurting our economy, costing our local manufacturers more money.  The tariffs are impacting the global economy as well.  The US-China trade war is not the only concern.  As blogged about earlier this week, Britain may leave the European Union without a deal.  A no-deal Brexit would cause Britain’s economy to falter, a deep concern of the Federal Reserve.  The unknowns with Brexit and the trade war are the key factor in the cut, and why the Chairman did not confirm this would be the only cut. 

While the rate cut was anticipated, many analysts are still wondering why.  Rate cuts previously occurred when the nation was in recession and unemployment rates were high.  But that isn’t the case today.  The labor market is strong and growing steadily.  The economic growth in the nation is healthy and inflation fell flat. 

The only thing economists and the Fed agree on is the US economy being a good one.  The Fed is hoping to use the rate cut to undercut the possibility of a recession and a risk of inflation in the US.  We will see how the rate cut will affect the US.