The speculation can end as the Federal Reserve announced this morning a 50-basis point cut in the Fed Funds rate, reports Fawad Razaqzada.
The Federal Reserve cut its Fed Funds rate by 50 basis points this morning in what is seen as largely a surprise move. While there has been a great deal of speculation regarding what the Fed would do following its cryptic statement on Friday, by no means was an immediate cut priced into the market.
Is the 50 basis point cut too early? Full Fed Statement
Did the Fed just cut interest rates because of the economic impact of the Coronavirus or because of the recent slump in equity prices? Whatever the reason, supporters of President Trump will claim that his renewed criticism of the Fed has done the trick. But make no mistake about it, the President will continue to call for zero interest rates despite the bigger than usual 0.5% easing.
However, with just another 1% of room left before zero, the Fed has little room for maneuver should the economy deteriorate sharply as a result of the virus spreading and resultant economic contraction. So, it remains to be seen how much of an impact this will have on the markets in the long term.
Some investors will no doubt be wondering whether the Fed has moved too soon. For now, though, the surprise 50-basis point rate cut has done the trick. The U.S. dollar has slumped, leading to a sizeable bounce for dollar-denominated gold, while equities have extended their gains after yesterday’s sharp rebound. Still, the immediate reaction has not been too great and that will disappoint the Fed – and President Trump.
Fawad Razaqzada, an experienced forex market analyst and economist, is founder of TradingCandles.com, where he posts market analysis on all sectors from both a technical and fundamental . Previously he served as a market analyst with FOREX.com and City Index.
