Markets Neutral As Fed Cuts Rates For First Time Since 2008

A recovery of sorts on Wall Street yesterday has carried over into the Thursday Asian and European markets this morning as equities markets react with tempered approval of the Fed decision to cut interest rates for the second time since 2008 – the first coming earlier this year. Having fallen as much as 1% during the first part of Federal Reserve chair Jerome Powell’s press conference the S&P 500 recovered to record a marginal gain.  The quarter point cut was, however, considered too conservative in some quarters, including for President Donald Trump who accused Powell of ‘lacking guts’.

Trump’s reaction maintained a tradition of the kind of direct attack on Federal Reserve policy that would have been unthinkable during any previous White House regime. His full statement read:

"Jay Powell and the Federal Reserve Fail Again. No ‘guts,’ no sense, no vision! A terrible communicator!".

The Fed itself is also split on the best way forward with three committee members voting for a cut of 0.5% and 2 on maintaining rate levels as they were. Commenting on the split, Mr Powell stated:

“Sometimes the path ahead is clear, and sometimes less so. This is a time of difficult judgments, as you can see, disparate perspectives. I really do think that’s nothing but healthy.”

Mr Powell’s rosy painting of the current health of the U.S. economy despite headwinds including the recent spiking of oil prices following the weekend attacks on Saudi oil facilities, reassured markets to some extent despite hopes for a more aggressive cut.

Quoted in the Financial Times, Peter Tchir, Academy Securities’ head of macro strategy tended towards agreement:

“People are overplaying how weak the economy is and how accommodative the Fed will be. The economy is not falling off the rails, and we could have a trade deal with China.”

Unemployment rates in the USA are at their lowest rates since 1969 despite a downturn in manufacturing orders over the past year. It is hoped that a breakthrough in trade talks with China would be enough to spark a recovery not only in orders but in investment in manufacturing facilities and capacity.