Federal Rate Down After Economic Growth Slows

November 1, 2019
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U.S. economic growth slowed in the third quarter, leading the Federal Reserve to implement its third consecutive Federal Rate cut. Wall Street analysts had widely predicted the move, with experts agreeing that a mild rate cut will help to sustain the economy.

Business investment overall is down, and it’s the consumers who are driving growth.

Here’s everything investors need to know about the latest news.

Growth is Down but Better Than Expected

Some analysts were fearful that U.S. Gross Domestic Product (GDP) could slow to a rate of 1.7% in the third quarter. The official figure was much better, with a rate of 1.9%.

Unfortunately, the rate does confirm that the economy is slowing. In the first quarter, GDP was strong with a rate of 3.1%. It dropped to 2.1% in the second quarter. The third quarter’s figure of 1.9% is the worst since 2018, when GDP was just 1.1% in the holiday quarter.

Despite trending downwards, the Federal Rate of decline is still relatively slow. This means that the economy should still be able to expand with careful management.

Consumers are Driving Growth

With the benefits of corporate tax cuts now normalizing, business investments have started to slow. Revenue has also slowed at some of the largest companies, partially due to trade tensions and tariffs.

However, consumer spending is incredibly strong, which is keeping the economy moving. A low rate of unemployment and moderate wage growth are helping in this area.

Jerome Powell, the Federal Reserve Chairman, said in a statement on Wednesday that the decrease in business investment is not likely to spill over to consumer spending in the short-term. Powell said that “The consumer-facing companies that we talk to in our vast network of contacts report that consumers are doing well and are focused on the good jobs market and rising income.”

Federal Rate to Remain Stable

The Federal Reserve cut its money rate to a range of 1.50% – 1.75% on Wednesday. It was the third consecutive quarter point cut. The central bank believes that this rate will remain stable for the meantime, so investors should not expect a cut at the next meeting, unless the economy shows significant signs of weakness.

The S&P 500 and NASDAQ indexes both closed with minor gains on Wednesday, indicating that investors have responded positively to the latest news.

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