The decision has been made in an effort to boost weak inflation and to fight an economic downturn. The central bank is hoping a rate cut will be sufficient enough to keep the US economy healthy.
Due to this, interest rates which set rates for the borrowing of mortgages and credit cards, are now set at roughly 2% and 2.5%.
This cut follows Donald Trump’s mounting pressure as he continues to comment on the Fed’s activity in a series of tweets stating “As usual, Powell let us down,” followed by commenting “We are winning anyway, but I am certainly not getting much help from the Federal Reserve!”
On Monday the President commented again on the Feds decision tweeting “all the wrong moves,” adding “a small rate cut is not enough.”
Although the Feds have made the cut in the hope of helping and sustaining the US economy, not all are in agreement with the decision. Eric Rosengren and Ester George, both Fed presidents, disapprove of the move debating whether this month was the appropriate time to cut rates.
Despite this, the Fed has stated they will continue to monitor the incoming data and act accordingly. Powell gave assurance that the cuts will not last a long period of time commenting “What I said was it’s not the beginning of a long series of rate cuts,” adding “We’ll be taking a somewhat more accommodative stance over time.”
Ben Ayers, Nationwide senior said the future move of the Fed will be dependent on how the economy and trade talks develop in the next few months. “Should trade negotiations turn positive and economic data, especially inflation, firm in coming months, July’s move could be a one-and-done easing,” said Ayers. “Still, given the slowing trajectory for the economy and precedence from previous mid-expansion easing cycles, a further rate cut (or two) by year-end may occur”.
Powell’s decision is a controversial move as previous Fred chairman have only cut rates in response to inevitable recessions as many believe low-interest rates cause negative effects. For Powell to make such a rare move when the US economy is relatively healthy the world will watch to see if the decision is successful.