That’s it for now for interest rate cuts from the Federal Reserve until the US economy weakens further and investors accepted the message with the S&P 500 closing at yet another high Thursday morning, Sydney time.
So while there was certainty that the third rate cut this year would happen at the November meeting of the Fed’s Open Market Committee – which it did, down 0.25% – there was also a sneaking suspicion that any reduction could be the last for a while.
And that’s what happened – the Fed cut the federal-funds target rate by a quarter percentage point, to between 1.5%-1.75% early Thursday morning, Sydney time but indicated there would be no more reductions unless the economy showed signs of further slowdown.
It was the third rate cut in as many meetings that seems to have been more than enough for now.
That view was supported by the first estimate of US GDP growth for the third quarter showed an annual rate of 1.9% and not the forecast 1.6% (The second quarter grew by 2.0%).
Still, as was to be expected Wall Street paused then turned down, then rose as investors realised the message from the Fed with its pause was positive.
The S&P 500 index rose 9.88 points, or 0.3%, to close at a record level of 3,046.77; the Dow Jones was up 115.27 points, or 0.4%, to close at 27,186.69, and the Nasdaq added 27.12 points, or 0.3% to end at 8,303.98.
The Dow sits about 0.6% from its record high of 27,359.16 set on July 15, while the Nasdaq remains 0.3% below its record of 8,330.21, set on July 26.
Overnight trading on the ASX futures saw a small fall of 5 points pointing to a soft start Thursday morning after Wednesday’s 55.9 point or 0.8% slip to 6,689.5.
The Aussie dollar firmed on the news and closed in on the 69 US cent level as the greenback eased. Gold rose in New York in after-hours trading to be up nearly $US7 to just over $US1,497 an ounce.
The Fed cited “the implications of global developments for the economic outlook as well as muted inflation pressures” to support its rate cut rate cuts are insurance against a recession.
Boston Fed President Eric Rosengren and Kansas City Fed President Esther George both dissented for a third time. They have argued the rate cuts have been unnecessary and have wanted the Fed to wait until more signs of economic weakness were evident.
The Fed dropped language used for the past couple of meetings promising the Fed would “act as appropriate” to sustain the expansion. That had been seen as a signal to markets that policy easing was in train. The Fed had used that phrasing with each of its June, July and September moves.
The Fed was upbeat about the outlook, saying the labor market “remains strong” and the economy has been growing at a moderate pace.
Economists said that by taking away the “act as appropriate” language, the Fed has indicated to the markets not to expect more cuts for now, just as markets in Australia have realised the September quarter CPI reading on Wednesday means the chances of a 4th rate cut this year from the Reserve Bank have receded.
