Fed Cuts Bigger Than Expected: What’s Behind Powell’s Decision
There Federal Reserve has cut rates, but not by 25 basis points as expected, but by 50, the first time in four years. “It is a sign of our confidence,” explained President Jerome in a press conference Powellwho added that it is not a declaration of victory over high inflation. Donald Trump’s reaction was immediate Trumpthe Republican candidate for the US presidential elections in November: “The Fed plays politics“. The decision – reports Il Sole 24 Ore – was taken by majority: Michelle W. Bowman would have preferred a cut of only 25 basis points. The Fed has consequently revised all forecasts downwards for future rates: for the end of the year the median of the indications of the individual governors points to 4.25-4.50%, corresponding to further reductions of 50 basis points. Another point may be cut next year.
The decision is based on a different assessment of the conditions of the US economy. The Fed acknowledged the slowdown in job creation, the statement said, while inflation “made further progress,” although it remains elevated.I am absolutely convinced – says Paul Donovan, the chief economist of Ubs Gwm to Il Sole – that the Federal Reserve is late in cutting rates. They were supposed to start in May. But fortunately this delay will not cause serious damage: no well-run company will fail if the cost of money remains 50 basis points higher for three months too long. In my opinion, Fed Chairman Jerome Powell, he’s not doing a good job – he comments -. To say that the Fed depends on data to make its decisions, just at the time when macroeconomic data is proving to be unreliable and subject to strong revisions, it is not wise.”
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