Thursday 1 August 2019

Fed disappoints investors despite cutting interest rates

The Federal Reserve cut the fed funds rate by 25 basis points on Wednesday as widely expected.

Nevertheless, the S&P 500 tumbled 1.1 percent anyway after the Fed failed to signal that further cuts were on the way.

“There is nothing in the statement about growth cooling here at home, and there is not a whole lot to suggest another rate cut is coming down the pike,” said Mike Loewengart, vice president of investment strategy at E*Trade.

Indeed, Chris Rupkey, chief financial economist at MUFG Union Bank, said that the rate cut on Wednesday may already have been too much.

Calling the rate cut an “unwise decision”, Rupkey noted that it was made “despite a strong economy with no recession signs apparent anywhere out on the horizon”.

Former Philadelphia Fed President Charles Plosser told FOX Business that the Fed may have felt compelled to cut, having given an indication earlier that a potential rate cut was in the foreseeable future after a tumultuous December 2018.

“I think the Fed has talked themselves into a corner here where I think they had to deliver on a 25 basis point cut today because they will be afraid of the market reaction,” he said.

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