Federal Reserve Majority Vote to Cut Rates by 0.25%

By a significant majority, the Federal Open Market Committee (FOMC) today voted to cut interest rates in the USA by 0.25% to a range of 3.5%-3.75% pa.  Of the committee, 9 voted for a 0.25% pa cut, 1 voted against as they actually wanted an even bigger cut of 0.5% pa and just 2 voted to leave rates as they are.  That’s 10:2 voting to cut rates.

The Federal Reserve committee reports suggested that:

• Economic activity growth is only moderate.
• Job number gains are moderate and unemployment is up.
• Economic uncertainty remains ‘elevated’.

The target for the FOMC is to get inflation down to 2.0% pa and to increase employment to get the economy moving.

Comment

The rate cut was as expected.  Markets were subdued ahead of the vote but settled with market gains thereafter and the Dow Jones setting a record high.  Domestic markets remain subdued though as the S&P 500 went down.

It would appear though that more FOMC members would have gone for a 0.5% pa cut but pared this back given global risks.  The FOMC is therefore quite ‘dovish’ i.e., nervous for the US economy as is the rest of the World but would appear to trying to take a measured approach to keep markets calm. 

Don’t forget it is ‘flu season’ in the northern hemisphere, ‘when the US sneezes, the World catches a cold’.

Next week it's the Bank of England's turn.