The Federal Reserve (Fed) lowered Wednesday, July 31 its key rate of a quarter point to 2.00 -2.25% to strengthen the US economy against risk. This decision - a first since the 2008 crisis - can be explained by the weakness of the global economy, the conquering trade tensions and the desire to revive inflation.
The Monetary Committee left the door open for a new gesture saying it would act "appropriately to support growth". But on this point, Jerome Powell sowed some confusion by saying at the same time that the Fed did not address "a long cycle" of declines and then pointing out that further reductions were not excluded.
Wall Street pulled back after the press release and during Jerome Powell's press conference and ended the session on appreciable losses. The yield on the two-year loan, the most sensitive to interest rate changes, rose to 1.88%. The dollar index reached a peak of more than two years, with a gain of about 0.5% on the day.
Donald Trump displeased
Two members of the Monetary Policy Committee, Boston Fed President Eric Rosengren, and his Kansas City Fed counterpart Esther George, spoke out against this decision and argued for a status quo on rates.
The move by the central bank did not satisfy US President Donald Trump who had pleaded for a further decline. Donald Trump has repeatedly criticized Jerome Powell, reproaching him for not doing enough to support the efforts of his administration to support growth. The White House tenant, who is seeking a second term, wants low rates that favor the consumer, lower the cost of debt and boost the Dow Jones on Wall Street.
The Fed "let us down," responded Donald Trump on Wednesday. The market wanted a signal that a "prolonged and aggressive rate reduction cycle" was underway, he added. A cycle "putting us in tune with China, the European Union and other countries around the world," continued Trump. "At least he (Powell) puts an end to a quantitative hardening that anyway should never have taken place."
As usual, Powell let us down, but at least it is ending quantitative tightening, which should not be started in the first place - no inflation. We are winning anyway, but I am not getting much help from the Federal Reserve!
Donald J. Trump (@realDonaldTrump) July 31, 2019While defending its independence, the Fed is finally acting in line with what President Trump has been calling for. Jerome Powell is forbidden to have yielded to pressure from the White House. "We never consider political considerations, we do not conduct a monetary policy to prove our independence," he said.
With AFP and Reuters