Fed cuts rates for a third time this year

Policymakers at the US central bank opted to cut the key federal funds rate by 25 basis points to a range of 1.5% to 1.75% during October. Members of the Federal Open Market Committee (FOMC) voted by eight to two in favour of the cut, which reflected hopes of a possible resolution to the longstanding trade conflict between the US and China.

  • US economic growth slowed down in Q3
  • The labour market remained robust
  • Subdued inflationary pressures continued

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Policymakers at the US central bank opted to cut the key federal funds rate by 25 basis points to a range of 1.5% to 1.75% during October. Members of the Federal Open Market Committee (FOMC) voted by eight to two in favour of the cut, which reflected hopes of a possible resolution to the longstanding trade conflict between the US and China. This was the Federal Reserve’s (Fed’s) third rate reduction so far this year, following cuts in September and July, but Fed Chair Jerome Powell signalled the end of the current loosening cycle, saying: “We see the current stance of policy as likely to remain appropriate”.

““Fed Chair Jerome Powell signalled the end of the current loosening cycle”

Nevertheless, President Donald Trump’s attitude towards the Fed remained censorious, tweeting: “People are VERY disappointed in Jay Powell and the Federal Reserve. The Fed has called it wrong from the beginning, too fast, too slow … We are now, by far, the biggest and strongest Country, but the Fed puts us at a competitive disadvantage”. Meanwhile, in a move that was roundly condemned by the White House, the House of Representatives voted in favour of a resolution to proceed with the impeachment inquiry against President Trump.

The S&P 500 Index reached a fresh high towards the end of October, boosted by the Fed’s interest-rate cut and by hopes of a possible end to the US-China trade war. The two countries reached a tentative agreement on trade during the month following trade discussions in Washington, but investors are likely to wait for tangible evidence of progress before dropping their guard. Over October as a whole, the S&P 500 Index rose by 2.1%, the Dow Jones Industrial Average Index increased by 0.5% during October, and the Nasdaq Index climbed by 3.7%.

Economic growth in the US slowed to 1.9% year on year during the third quarter, having posted annualised growth of 2% in the second quarter and 3.1% in the first. Although consumer spending proved resilient, business investment and public spending declined, inflationary pressures remain muted, and the impact of President Trump’s tax cuts tailed off.

The labour market remained strong during September: the rate of unemployment fell from 3.7% to 3.5%. The economy added 136,000 new jobs in September, and new jobs in August were revised up from 130,000 to 168,000. However, average earnings growth eased to 2.9%.


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