Fed Cuts Rates, Signals It “May” Not Need to Do More

Fed Cuts Rates, Signals It “May” Not Need to Do More

$DIA, $SPY, $QQQ, $RUTX, $VXX

The FOMC cut interest rates as widely expected Wednesday, but Chairman Powell said he did not view the move as the start of a lengthy series of rate cuts.

Fed Chairman Powell cited global weakness, trade tensions and a desire to boost too-low inflation in explaining the central bank’s decision to lower borrowing costs for the 1st time since Y 2008 and move up plans to stop paring its massive bond holdings by 2 months, it will finish in August.

Financial markets had widely expected the Fed to reduce its Key overnight lending rate by a quarter of a percentage point to a target range of 2.00% to 2.25%, but traders expected a clearer confirmation of forthcoming rate cuts.

In a statement at the end of its latest 2-day policy meeting, the Fed said it had decided to cut rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.

The Fed also said it will “continue to monitor” how incoming information will affect the economy and “will act as appropriate to sustain” a record-long US economic expansion.

Chairman Powell, speaking in a news conference after the release of the Fed statement, characterized the rate cut as “a mid-cycle adjustment to policy,” comments that do not imply sharp further cuts are on the way.

US stock prices fell after the Fed’s statement and during Chairman Powell’s press conference. The benchmark S&P 500 index was down 0.8%. Yields on 2-year notes, a proxy for Fed policy rates, rose to 1.88%.

.DXY gained marking its highest level in more than 2 years. The index, which measures the Buck against a basket of 6 peer currencies, was up about 0.5% on the day.

President Trump is likely disappointed the Fed did not deliver the large rate cut he wants to sustain US growth. Expect President Trump to continue to hammer Chairman Powell for not doing enough to help his administration’s efforts to boost economic growth. Expect President to get his way with the Fed.

The Fed said the rate cut should help return inflation to its 2% target but that uncertainties about that outlook remain. Sustained expansion of economic activity and a strong labor market are also the most likely outcomes, the Fed said.

Underscoring its decision to ease policy across the board, the Fed also said it would stop shrinking its $3.6-T in bond holdings starting 1 August, 2 months ahead of schedule, thus ending the quantitative tightening now.

Wednesday, the major US stock market indexes finished at: DJIA -333.75 at 26864.27, NAS Comp -98.19 at 8175.43, S&P 500 -32.80 at 2980.38

Volume: Trade on the NYSE came in at 1.3-B/shares exchanged

  • NAS Comp +23.2% YTD
  • S&P 500 +18.9% YTD
  • Russell 2000 +16.8% YTD
  • DJIA +15.2% YTD

HeffX-LTN’s overall technical analysis of the major US stock market indexes is Bullish to Very Bullish in here.

Stay tuned…

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