For the first time since the 2008 financial crisis, the Federal Reserve has cut interest rates.
The move came on Wednesday as the Fed tries to maintain the US economy’s record-long economic growth period.
The Fed has cut interest rates in an effort to insulate the American economy from global economic risks, which have been rising. The decrease of one quarter-point marks the first interest rate cut since 2008, when the Fed slashed interest rates down to almost zero. The biggest difference between these interest rate cuts is that the 2008 cuts were meant to save a failing economy, whereas the current ones are meant to protect a strong economy. The US economy is going strong, but it’s facing mounting risks as a result of slowing growth in China and elsewhere. There is also the risk of unintended consequences resulting from the trade war with China.
According to Fed chairman Jerome Powell, “The outlook for the U.S. economy remains favorable, and this action is designed to support that outlook.” He went on to explain that the cuts are intended to “ensure against downside risks from weak global growth and trade tensions.” While the move was long-expected, neither the stock markets nor President Donald Trump are exuberant. The cuts disappointed both the markets and Trump, all of whom were expecting greater cuts. The Fed has explained that the move is a small change meant to help the US better handle global economic conditions, but they didn’t speak of any further rate cuts as of Thursday. The door is open for further rate cuts should the Fed see them as necessary, but there are no current plans.
President Trump, for his part, tweeted, “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!”
