The markets aren’t too happy with the Federal Reserve this morning.
All after the central bank cut rates by a quarter point to a range of 1.75% to 2%, disappointing many looking for a deeper cut. The bank also made it clear the cut was meant to serve as an insurance policy not against what’s happening now, but what could happen down the road.
Granted, the U.S. economy still remains strong with solid job growth, a decades-low unemployment rate, and an uptick in wage growth. The FOMC cited “implications of global developments for the economic outlook as well as muted inflation pressures.” The committee called the current state of growth “moderate” and the labor market “strong,” said CNBC.
“It is an unusual situation,” Fed boss Jerome Powell said. “The U.S. economy in itself is strong. … The difference here is we have significant risks” that elected officials will have to manage.
Still, the Fed decided to cut anyway to safeguard against unexpected developments.
The Central Bank is Leaving the Door Open to More Cuts
The Fed did leave the door open to future cuts, noting that it would “act as appropriate to sustain the expansion” as it evaluates the data.
“There’s a range of things that they’re looking at. Really, the low inflation allows the Fed some latitude to take preemptive steps and hopefully avoid moving in the future to something like negative rates,” said Mark Haefele, global chief investment officer at UBS Wealth Management, as also noted by CNBC. “Because they did only 25 basis points, they avoided doing what some would have felt was more shock and awe with 50 basis points. So, they can move towards language like ‘data dependent’ now that they’ve shown they are prepared to be flexible.”
Even with that, markets aren’t too happy with just a quarter point cut.
President Trump was even unimpressed, tweeting, “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”
However, as Powell also noted, it was the most important thing he could have said, “I think you’ve seen us being willing to move based on data, based on the evolving risk picture. I have no reason to think that will change.”