Fundamental Comment

Fed slashes interest rates by 25bp, yet dollar rises

Fed slashes interest rates by 25bp, yet dollar rises

In a widely predicted move, the Federal Reserve opted to cut interest rates by 25 basis points to a range of 2%-2.25% to support the economy amidst the global slowdown and repercussions of the trade war.

The Fed “will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” according to the statement.

The Fed fund rate is still half of the 5.25% level before the 2008 global financial meltdown, when the Fed was last forced to start slashing interest rates.

Additionally, the Fed eased further by announcing it would stop selling off its $3.8 trillion assets in August, two months earlier than expected.

The Fed stressed on the “soft” business investment and low inflation as signs of potential weakness in the world’s biggest economy.

However, Fed members Boston Fed President Eric Rosengren and Kansas City Fed President Esther George voted in favor of holding interest rates.

The dollar index hit a new session top at 98.21, the highest level since May 23. Yet, it lowered some of the gains to trade at 98.07.

Powell says more cuts are not guarantee

Powell commented on the rate cut by stating it was meant to adjust policy, but stressed there were no guarantees of future rate cuts.

“We’re thinking of it essentially as a mid-cycle adjustment to policy,” Powell said at the press conference.

Powell said there was “definitely an insurance aspect” to the cut.

Slashing interest rates is to act against “downside risks,” to support the economy and to bolster inflation, he said.

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