Published: Thu, August 01, 2019
Money | By Ethel Goodwin

Fed to cut rates for first time since financial crisis

Fed to cut rates for first time since financial crisis

Apple Inc AAPL.O extended its gains, rising 2.0% after an increase in services and wearables more than offset a drop in iPhone sales. That's why credit card rates have stayed in the teens, even as overall interest rates have been in the low single digits.

And while some high yield online savings accounts may nudge down slightly, the national average for interest rates on savings account has stayed stubbornly close to zero over the past decade, despite numerous rate hikes. That is in part because they do not move ahead of rate changes and not in lockstep. "Our small business community was damaged by the Fed's rate increase previous year, which is why we opposed their decision then, and why we are excited by their decision today".

"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".

'With nearly no inflation, our Country is needlessly being forced to pay a MUCH higher interest rate than other countries only because of a very misguided Federal Reserve, ' he wrote then in a tweet. "All told, the case for lowering rates is less compelling now than it was when the [Fed] last met in June".

Trump added the Fed "moved far too early and far too severely" to raise interest rates a year ago.

Expectations for a Fed rate cut have given a boost to USA stocks since early June when Powell signaled a shift towards a more dovish stance, citing worries about trade war uncertainty and slowing global growth. "That they're cognizant of trade and tariff issues causing some slowdown, and a small cut tomorrow reinforces that rates are more likely to go down than up in the intermediate term, which markets see as a positive signal".

"I didn't say it's just one or anything like that", Powell said.

Trump has relentlessly attacked the politically-independent central bank for raising rates in 2018, with his frustration reaching a point where he began asking aides about his ability to oust the Fed chief in discussions reported by Bloomberg News on December 21. That will likely lead investors to expect another quarter-point cut as early as September, without committing the Fed to such a move.

Investors will also be looking for more clues about potential cuts in the future when Powell briefs reporters at his now-regular press conference.

Kohn and former Fed governors Frederic Mishkin and Sarah Bloom Raskin urged Fed Chair Jerome H. Powell and his colleagues to be more clear about why they are doing a cut this week and what they will watch going forward. Yields on 2-year notes US2YT=RR, a proxy for Fed policy rates, rose to 1.87%. Eastern time. The Dow Jones Industrial Average dropped 425 points, or 1.6%, to 26,765. It was down as much as 478 earlier.

Mortgage rates have also dropped, with rates on the average 30-year US home loan falling under 4.1%, near a 22-month low and more than half a percentage point below the average since the global financial crisis more than a decade ago, according to the Mortgage Bankers Association.

The U.S. central bank on Wednesday cut its target overnight interest cost by a quarter percentage point, to a range of 2% to 2.25%.

The central bank cut rates for the first time since the 2008 crisis, in what market observers interpreted as an "insurance policy" to guard against a deeper downturn.

The Fed's decision, which kept the door open for more easing, came at a time when the US economy is still in solid shape.

With this cut, the Fed hopes to sustain the expansion of economic activity, although it also cautions that uncertainties remain about this outlook.

The Fed cut the benchmark lending rate by 25 basis points to a range of 2% to 2.25%.

It will be the Fed's first rate cut since December 2008 in the depths of the Great Recession.

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