2019-09-07 17:37:00 Sat ET
federal reserve monetary policy treasury dollar employment inflation interest rate exchange rate macrofinance recession systemic risk economic growth central bank fomc greenback forward guidance euro capital global financial cycle credit cycle yield curve
Federal Reserve Chair Jerome Powell announces the monetary policy decision to lower the federal funds rate by a quarter point to 2%-2.25%. This interest rate cut is the first rate reduction since December 2008. For most American investors, the rate cut can mean a reprieve in the average cost of capital. Powell reiterates that this interest rate reduction cannot be misconstrued as a one-time rate cut or the first in a series. Stock market analysts may view Federal Reserve monetary policy independence in a negative light as the FOMC approves the interest rate cut under pressure from a vocal president. The interest rate cut sends a shiver through global markets, and the intricate nuances of Powell language reverberate in response to persistently low inflation in America.
Powell faces direct and confrontational questions on why a rate cut is necessary when the U.S. economy remains robust with high employment. The current U.S. inflation rate hovers in the reasonable range of 1.5%-1.7% below the 2% monetary policy target, and the current U.S. unemployment rate persists at 3.7% per annum. The recent interest rate cut may inadvertently limit the Federal Reserve monetary policy adjustments in response to a future financial downturn.
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Federal Reserve reduces the interest rate by another key quarter point to the target range of 1.75%-2% in September 2019. In accordance with the Federal Res