The US dollar rose to a two-year high but the Dow Jones stock index slid over 300 points after the Federal Reserve announced a “one-off” quarter-point interest rate cut, less than President Donald Trump and investors clamored for.
The federal funds rate was cut by .25 percentage points, to a range of 2-2.25 percent. The first rate cut since the 2008 financial crisis was a “mid-cycle policy adjustment” and not a broader loosening of monetary policy, Fed chairman Jerome Powell said on Wednesday.
“The outlook for the US economy remains favorable and this action is designed to support that outlook,” Powell said.
Trump grudgingly hailed the move, but complained that “as usual, Powell let us down” by not starting a “lengthy and aggressive rate-cutting cycle” to keep pace with China, the EU and others.
“We are winning anyway, but I am certainly not getting much help from the Federal Reserve!” the president tweeted.
Powell explained the cut was also intended to boost inflation closer to its annual target of two percent.
While the US dollar rose in value as a result – reaching its highest value against six other currencies since May 2017 – the stock markets took a dive, with the Dow Jones Industrial Average down 333.75 points to close at 26,864.27.
Following the 2008 financial crash, the Fed had slashed borrowing costs to almost zero. Starting in 2015, however, it has raised interest rates nine times, most recently in December 2018.
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