Wednesday, June 5, 2019

The New Direction for Interest Rates

Is the next step for the Federal Reserve an interest rate cut? Fed chair Jerome Powell said yesterday that the Fed was “closely monitoring” the impact of trade developments and would “act as appropriate” to sustain the economic expansion. That came after St. Louis Fed President James Bullard said the Fed may need to cut interest rates soon amid concerns about weak inflation and risks to economic growth.

The markets seemed to think this meant a potential cut in interest rates, and reacted accordingly. After a disastrous Monday, the Dow Jones Industrial Average and the S&P 500 both rose 1.8 percent yesterday, while the Nasdaq was up 2.2 percent.

The last time the Federal Reserve cut its benchmark Fed Funds rate was on December 17, 2008, shortly after the financial markets melted down. That was its tenth rate cut in just over a year, and brought the rate to near zero; the Fed wouldn’t raise rates again until December 2015.

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