For the first time in a decade the United States Federal Reserve has cut interest rates by a quarter a percentage point against the backdrop of the escalating tensions between Beijing and Washington. The central bank introduced the to save the nation from falling into another economic crisis. The Fed last got the rates down a decade ago, to support the crashing economy during 2008 financial crisis.
While announcing the rate cuts, the Fed chairman Jerome Powell said the US economy had been growing ‘at a healthy pace’ in the first half of the year, though there had been “both positive and negative developments’. Bad being a slump in the manufacturing output for two consecutive quarters, while good being the trade talks between China and US ‘appear to have returned to a simmer’.
The negotiators of two of the world’s biggest economies met this week to put an end to the year-long tariff war. A deal could soon be expected, terms and conditions applied.
The market analysts seemed satisfied with the Fed cuts, while US president Donald Trump appeared unhappy as he wanted the central bank to lower the rates further.
After hours of the Fed chair’s announcement, Trump expressed his disappointment through his tweet, as he wrote: “What the market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, the European Union and other countries around the world.
“As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!”
Powell also clarified the rumours of central bank bringing the rates down due to Trump’s pressure. He said that there was ‘no place’ in the central bank’s agenda for political issues. To infuse confidence in the market he recommitted that the bank would ‘act as appropriate’ even if it means bringing the rates further down to sustain the country’s economy.
The rate cuts bring down the borrowing cost, enabling the business and consumers to fetch more money through credit cards or loans without being burdened with heavy interest rates.