The Federal Reserve cut interest rates on Wednesday for the first time since the start of the financial recession more than a decade ago, hoping to preserve the 11-year economic expansion from growing global uncertainties and the possibility of an impending slowdown.
"Heading into Wednesday, the index was up about 3 per cent since June 19, when the Fed first signaled a rate cut was likely as it pledged then to act as appropriate to sustain the expansion". The Fed has not reduced interest rates since 2008, when it essentially dropped rates to zero to cope with the fallout from the financial crisis. Stocks fell slightly after the Fed issued its statement. It's unclear how much opposition even a quarter-point cut will face within the FOMC, or what signal will emerge about the scope for further easing. A recession hardly seems imminent.
"While the PBOC won't likely follow the Fed immediately, it may still cut policy rates by the end of this quarter, in a move to ease appreciation pressures on the yuan amid a weakening dollar", said Xing Zhaopeng, a markets economist at ANZ Bank China Co in Shanghai.
The Federal Reserve has answered market participants' calls for more dovish policy.
The idea is that lowering its key short-term rate could encourage borrowing and spending and energize growth. The stock market has recovered from previous year, and money remains cheap. -China trade war and softening global growth.
Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.
The move comes after Donald Trump has applied significant pressure on the central bank to lower rates in order to stimulate economic growth. Those rates more closely track inflation expectations and the long-term economic outlook, and have already fallen substantially in recent months as concerns about the economy and low inflation have grown.
"The message this sends to the market is that the Fed is supportive of economic expansion", said Sroka.
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Trump has blamed the Fed's four rate hikes in 2018 as a key reason why the USA economy is slowing. "That's about as low as you can go".
Recent government reports - on economic growth, consumer spending and orders for durable manufactured goods - have confirmed the economy remains on firm footing even with pressures at home and overseas.
Policy makers appeared open to another cut as early as September when they next convene, while sticking with wording in their statement that preserves their options.
Federal student loans have a fixed interest rate set by Congress and are not affected by the Fed's move. Some also suggest that by driving rates ever lower, the Fed might be helping to fuel unsafe bubbles in stocks or other risky assets.
The immediate outlook for policy has been made crystal clear thanks to a communications flub by New York Fed President John Williams in a July 18 speech.
The Fed last raised rates in December but has backed off plans for further tightening.
Still, lowering the interbank borrowing costs could be seen as necessary, otherwise appreciation pressure on the yuan will increase, as the yield premium Chinese bonds have over their U.S. counterparts will widen. We are competing with other countries that know how to play the game against the U.S. That's actually why the European Union was formed.and for China, until now, the U.S. has been "easy pickens".