Wall Street fell 1% after the US Federal Reserve cut its main interest rate by 0.25% for the first time since the GFC – and signalled there could be another cut at its next meeting in September.
The cut was widely tipped by analysts and Wall Street had risen solidly ahead of this week’s meeting.
Perhaps that’s why the cut saw the three major indexes on Wall Street – the Dow, S&P 500 and Nasdaq all fell, with the drop accelerating in the last half hour of trading.
The Dow fell 1.23% or 333.75, the S&P 500 lost 1.09% or 32.83 and the Nasdaq skidded 98.19 points or 1.19%. That will see the ASX 200 open slightly lower Thursday morning.
Gold and also oil fell, short term US interest rates rose, then fell as the central bank also ended the shrinking of the size of its balance sheet which was effectively a tightening of monetary policy.
That starts today, August 1, two months ahead of schedule.
The new level for the Federal Funds rate is 2% to 2.25%.
In its policy statement, released early Thursday morning Sydney time, the Fed justified the easing by pointing to “uncertainties” stemming from weakness in the global economy and simmering trade tensions.
“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower’’ rates, the Federal Open Market Committee, said in the statement issued at the end of a two-day meeting in Washington.
It also noted that “uncertainties” about the economic outlook remain.
“Although growth of household spending has picked up from earlier in the year, growth of business fixed investment has been soft. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed< “ the statement read.
The Fed appeared ready for another cut as early as the next meeting in September, saying
“As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”
But Fed chair, Jerome Powell seem to play down that chance at his later press conference by suggesting he saw the cut in the Federal Funds rate as more of a correction rather than the start of a trend.
Two members of the committee voted against the cut – Kansas City Fed President Esther George and Boston’s Eric Rosengren. The after-meeting statement said the two dissenters “preferred” to leave the Federal Funds rate where it was.
Reuters said it was the first time since Powell took over as chairman in February 2018 that two policymakers dissented.
