In what was a widely expected outcome, the Federal Reserve pull the money rate cuts by 0.25% at the conclusion of a two-day policy meeting on Wednesday.
The rate cut is the second this year, and it reflects a shift in Fed sentiment, with the Board of Governors being particularly concerned about economic headwinds like trade disputes. The meeting was the first in three years to see three dissenting votes, but not all dissenters were in favor of a heavier cut.
Here’s everything investors need to know about the decision.
There Could Be One More Rate Cut in 2019
Federal Reserve Chairman Jerome Powell announced the quarter point rate cut on Wednesday and said that the central bank will act “as needed” to address any significant changes in the U.S. economy. Many investors will take this as a signal to watch and see what the Fed decides for the mid-term future, but there’s actually a possibility that there could be another rate cut this year.
Nine of the seventeen member Federal Reserve Committee are believed to be in support of a rate cut in the fourth quarter. Insiders have told news publications that Jerome Powell is among the members who will support a cut later this year. The final rate cut will likely come in December, and it could help to drive markets into the new year.
There were three dissenting votes when the Fed met yesterday. James Bullard, voted against the quarter point rate cut, instead favoring a half point to stimulate rather than sustain the economy.
Eric Rosengren from the Boston Fed, and Esther George from the Kansas City Fed also voted against the rate cut, but their dissent was because they wanted the rate to remain unchanged.
Conservative Rate Cuts are Objectively the Best Outcome for Investors
President Trump was clearly not happy with the rate cut when he tweeted on Wednesday night. He told his followers that “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”
Trump has repeatedly called for heavy rate cuts, and even asked for a zero or negative interest rate earlier this month.
However, for investors and the entire economy, mild rate cuts are the better option. The economy is still growing today, continuing an expansion that has lasted 11 years. Cutting the rates too far now would leave no room to move when a recession truly is on the horizon.
Stocks could see a moderate boost this week thanks to the rate cut, and mortgage lending terms are likely to improve. With another cut possible at the end of the year, the bear market of 2019 could still have life in it.
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