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Federal Reserve Cuts Rates for Third Time This Year, Hints More Cuts Off the Table

Professor of Financial Economics and Part-time Value Investor, Transfin.
Oct 31, 2019 12:02 PM 2 min read

As expected, Federal Reserve cuts interest rates for third time this year, indicates that further easing may be off the table but rates could be kept low for longer.


It's A Cut: It was widely expected and it's the third time this year. The Federal Open Market Committee (FOMC) lowered its benchmark funds rate by 25 basis points to a range of 1.5% to 1.75% on Wednesday. The easing comes as US growth numbers decrease and the global economic outlook becomes ever-so-gloomy.


The Fed's decision was received positively by markets. US equities rose, as did Asian equity markets.


Significantly, the Federal Reserve indicated further rate cuts are presently off the table. In its statement, the FOMC removed a key phrase - that it was committed to “act as appropriate to sustain the expansion” - that had been incorporated into official language since June as a way to tease the impending monetary easing. CNBC


In its place was more moderate language. “The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate,” the statement said.


Future decisions, the Fed explained, would depend on future economic numbers, news on trade tensions between US and China, and movement of inflation, which continues to run below the 2% objective.


The Central Bank also indicated that only if inflation goes past the target level will there be a case for a rate hike. This means even if a wholesome trade deal is reached between Washington and Beijing, the rates might not be increased. Such a "lower for longer" stance is particularly good news for emerging market assets - from currencies to equities. Moneycontrol



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