Market Bulletin: Fed Cuts Interest Rates for First Time Since 2008

On Wednesday, July 31st, 2019 the Federal Reserve decided to cut interest rates for the first time since 2008. This 25 basis point rate cut comes as concerns over slowing economic growth heighten and inflation levels remain muted. As part of the announcement, the Federal Reserve left open the possibility of an additional rate cut later this year, though during the subsequent press conference Fed Chairman Jerome Powell stated this is “not the beginning of a long series of rate cuts.”

While the Fed noted that economic activity has been rising at a moderate rate – including solid jobs gains, persistent low unemployment rate, and continued strength in household spending – soft growth of business investment and concerns over the global economic outlook prompted the Fed to cut rates. Chairman Powell during his press conference was careful to note that he considers this move a “mid-cycle adjustment” suggesting there is still room for this expansion to run.

Treasury yields rose, the dollar strengthened, and equity markets fell following the announcement and Chairman Powell’s comments as many investors anticipated a more dovish stance from the Fed following this week’s meeting.

Looking ahead

In the short-term, this move will decrease the cost of borrowing. For consumers, this means lower borrowing costs for loans and mortgages which should help further strengthen consumer spending. The primary goal, however, is to incentivize business spending on capital expenditures to meet the already strong consumer demand.

Although interest rate cuts are normally seen as a monetary policy technique employed during times of recessions, Fed Chairman Jerome Powell emphasized that the outlook for the U.S economy remains favorable. For those concerned about the possibility of a recession in the near future, refer to Fed Chairman Powell’s statement, “if you look at the U.S. economy right now, there’s no sector that’s booming and therefore [there are none that] might bust.”

However, events like these are a good time to evaluate your investment and saving strategy to make sure they are aligned with your risk tolerance and goals. If you would like to speak to someone about your personal situation, please reach out to the Financial Wellness Team at Pensionmark.

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