As expected by many, the U.S. Federal Reserve cut the target range for its key interest rate by 25 basis points amid concerns about slowing global growth and trade tensions.
Despite the cut, the U.S. central bank assured investors that the U.S. economy is stable. In a statement, the Fed said, “This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain”.
The decision to lower interest rate came after a spike in overnight borrowing rates forced the New York Fed to launch what is called an “overnight repo operation” aimed at easing pressure in the markets. The operation involved injecting $53 bullion in capital into the U.S. financial system by buying Treasuries and other securities.
Split Vote
Seven members of the U.S. Fed voted in favor of the cut on Wednesday, including Fed chairman Jay Powell. Two voted to keep the rate steady, while one wanted to cut further.
Cutting interest rates encourages people to take out loans and invest money, thus, powering economic activity.
U.S. President Donald Trump criticized the Fed immediately after the rate cut announcement. He called out Fed chairman Powell in a tweet saying, “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”.
Global Slowdown
The global economic growth rate has been at risk in recent quarters. In fact, the International Monetary Fund in July lowered its global growth forecast for this year from 3.3 percent to 3.2 percent. The Bureau of Economic Analysis reported second-quarter U.S. GDP growth of 2.1 percent, above consensus forecasts of 1.8 percent but down from 3.1 percent in the first quarter.
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