After months of President Donald Trump pushing on them, the fed finally caved in and for the first time since 2008, has lowered interest rates. Another key battle won by Trump that will only serve to improve an already robust economy.
As CNN reported, “Policymakers led by Fed Chairman Jerome Powell voted 8-2 in favor of a small cut in the federal funds rate, and recommitted to their promise to ‘act as appropriate’ to sustain the country’s longest economic expansion in history.”
Powell explained, “The outlook for the U.S. economy remains favorable and this action is designed to support that outlook. It is intended to ensure against downside risks from weak global growth and trade policy uncertainty, to help offset the effects these factors are having on the economy, and to promote a faster return of inflation to our 2% objective.”
According to CNBC, “In approving the cut, the FOMC cited ‘implications of global developments for the economic outlook as well as muted inflation pressures.’ The committee called the current state of growth ‘moderate’ and the labor market ‘strong,’ but decided to loosen policy anyway.”
On Monday Trump had tweeted that a cut was necessary, but that a small cut was not sufficient. He wrote:
“The Fed “raised” way too early and way too much. Their quantitative tightening was another big mistake. While our Country is doing very well, the potential wealth creation that was missed, especially when measured against our debt, is staggering.
We are competing with other countries that know how to play the game against the U.S. That’s actually why the E.U. was formed….and for China, until now, the U.S. has been “easy pickens.” The Fed has made all of the wrong moves. A small rate cut is not enough, but we will win anyway!”
Asked about the Fed’s move on Wednesday, Trump responded by saying that the Fed’s decision to raise rates in the first place was wrong and hindered the booming U.S. economy from thriving at its full potential.
Additionally, he said the cut was not big enough and he would like to see a larger one.
“The Fed move, in my opinion, far too early and far too severely; it puts me somewhat at a disadvantage. Fortunately I’ve made the economy so strong that nothing’s going to stop us. But the Fed could have made it a lot easier; I would like to see a large cut and I’d like to see immediately the quantitative tightening stop. It should be stopped. For them to do quantitative tightening and also higher interest rates simultaneously, I think was a big mistake.
I also think that had they not done it, as good as we’ve done, we’ve hit a record, as you will tell, as you will say, in the stock market. We had an all-time high in the history of the stock market; I think I would have been 10,000 points higher and I think we would have been in the 4’s with GDP.”
Mark Haefele, global chief investment officer at UBS Wealth Management, told CNBC,
“There’s a range of things that they’re looking at. Really, the low inflation allows the Fed some latitude to take preemptive steps and hopefully avoid moving in the future to something like negative rates.
Because they did only 25 basis points, they avoided doing what some would have felt was more shock and awe with 50 basis points. So, they can move towards language like ‘data dependent’ now that they’ve shown they are prepared to be flexible.”
This change by the Fed, while not as strong as Trump suggested, is a good move that will undoubtedly give our economy a bump and could even go as far as ensuring that Trump secures the White House once again in 2020.