The US Fed is cutting rates for the first time in four years
The US dollar is still the most important currency in the world, and the American economy is arguably the most important financial system as well. So, when the US Federal Reserve makes a big announcement, it creates an economic wave that ripples everywhere. That's why Wednesday's decision to cut the overnight lending rate by 0.50% is such a big deal.
Many thought the US Fed would start cutting rates this week, but it was thought to go with a 0.25% cut to kick off a cycle of interest rate cuts. A 50 basis point cut lowered the federal funds rate from 4.75% to 5%.
The US Fed announced in a statement: “The Committee found a high level of optimism that inflation is moving towards 2%, and determines that the risks to achieving its employment and inflation goals are about equal.”
Federal Reserve Chairman Jerome Powell said, “We are trying to achieve a situation where we restore price stability without the painful increase in unemployment that sometimes comes with this inflation.” That's what we're trying to do, and I think you can take today's action as a sign of our firm commitment to that goal.”
Shortly after the news of the first US interest rate cut in four years, the major stock market indexes responded with a brief jump on Wednesday. But they finished the day almost over. That proved to be a delayed reaction for investors, as the bulls bounced back on Thursday with the Nasdaq up 2.5% and the Dow jumping 1.3% to pass 42,000 for the first time.
Notably, former US President Donald J. Trump continued to criticize the monetary decisions made by the US Federal Reserve. This despite centuries of financial wisdom telling us that politicians engaging in short-term monetary policy is a bad idea. (See: Turkey – Erdoğan, Tayyip.) At bitcoin bar PubKey on Wednesday, Trump said, “The economy would be worse, even if they were playing politics.”
The larger-than-expected rate cut left some analysts questioning whether the move would disrupt markets. But, if the US Fed can thread the needle and cut rates without a recession, it would be a good thing. Historical presentations are great for shareholders.
These large devaluations are helping to ease the pressure on emerging markets that are denominated in US dollars. Also, it takes some pressure off other central banks around the world who didn't want to see their currencies devalued too much against the strong USD.
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