Federal Reserve Slashes Interest Rates
The United States Federal Reserve has cut interest rates for the third time in 2019 with the intention that this new rate will be maintained for the foreseeable future. The Fed chairman, Jerome Powell, announced on Wednesday that the federal funds rate (interest rate) had been cut by 0.25% to leave it in a range of 1.5%-1.75%. While the Fed has indicated that it wants no more easing of monetary policy, Mr Powell has left the door open for policymakers to react should they feel prompted to do so:
"Looking ahead, we will be monitoring the effects of our policy actions, along with other information bearing on the outlook, as we assess the appropriate path of the target range for the fed funds rate. Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a pre-set course."
The decision to cut rates was not unanimous. In spite of all of the supposed “positive [information] of moderate economic growth”, two members of the Federal Open Market Committee, Esther George and Eric Rosengren, voted to maintain the target rate at 1.75%-2%.
Gold strengthened against the US dollar after the announcement was made. At the time of writing, gold sits at $1514.03 per troy ounce which is an increase of around 1.55% since the rate change was made. Do not be surprised if more interest rate cuts lead to higher gold prices.
Elsewhere in the land of the central banks, the European Central Bank (ECB) has held its record low interest rates steady and committed to more quantitative easing. The outgoing ECB President, Mario Draghi, was unmoving, stating, “That is part of our legacy”. The new head of the ECB, Christine Legard, took charge on the 1st November and according to ECB Governing member Yannis Stournaras she is expected to continue the stimulus packages initiated by Mr Draghi.
Closer to home, the recent announcement of the snap general election has forced the selection of a new Bank of England governor to replace Mark Carney to be delayed. This will now take place in January, giving the new government barely six weeks to decide on a successor. Mr Carney is scheduled to leave office on the 31st January and Bank and Treasury officials have advised that a hasty appointment could be undermined in the case of a change in government.
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A full transcript of Jerome Powell's press conference can be found here.