US Fed Cuts Rates by 25 Bps; Trump Says Fed Has No Guts

September 18, 2019 | Alternative Investments, Headlines

As expected, the Fed cut interest rates to sustain the economy but was non-committal on future cuts.

Federal Reserve Chair Jerome Powell painted an optimistic picture of the US economy, citing buoyant labor markets and inflation nearing targets.

However, the 25 basis points rate cut addressed ongoing risks such as tepid global growth and trade wars.

In what is termed a “hawkish” rate cut, Powell gave no clue on the possibility of further rate cuts. “We are going to be highly data-dependent …. We are not on a preset course,” he said.

However, he did say that the Fed stood ready with “a more extensive sequence of rate cuts” should the economy wobble.

The Fed voted 7-3 on the decision to lower the overnight rate to a range of 1.75% to 2.00%. The central bank had previously cut rates in July.

The Federal Reserve also sharply cut by 30 basis points the rate it pays on bank reserves, in a move aimed at the crisis earlier this week in the short term borrowing markets.

The central bank faced a trade-off between lowering rates due to economic concerns and the risk that households and businesses may borrow excessively. Extremely low rates could fuel a moral hazard in the economy.

The Fed draws Trump’s ire again

Meanwhile, President Trump blasted the decision for just a 25-point cut. In a blistering tweet attack, Trump said Powell and the Fed had failed again. “A terrible communicator,” he tweeted, referring to Powell. “No guts, no sense, no vision!”

However, Trump’s focus appears to center more on the economic boost that lower rates should provide. However, the last 48 hours has seen a deterioration in the Repo markets and a massive injection of excess reserves by the Federal Reserve Bank of New York. Federal Reserve Chair Jerome Powell is trying to find the equilibrium that will keep banks lending and healthy it appears instead of focusing on just slashing rates to bolster growth.

Expect Trump to continue his barrage on the central bank as the year continues.

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