USA stocks post a split finish as Fed delivers a rate cut

Federal Reserve cuts interest rates amid fears of global slowdown

Fed Chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. EDT (1830 GMT) to elaborate on the policy decision.

Kerstin Braun of the Stenn Group said: "Real capital growth and real economic activity are driven by long-term interest rates, which are functions of expected future inflation and investor confidence".

"If the economy does turn down, then a more extensive sequence of rate cuts could be appropriate", he said.

Global headwinds appear to be growing, with recent economic data stoking concerns for a looming USA recession within the next 18-months. "We are not on a preset course".

However with the cut largely priced in already, the direction of the U.S. dollar following the announcement is likely to be determined by the bank's forward guidance and the chances of further monetary easing.

In a hint that the Fed may soon take bigger steps, Powell acknowledged that strains in funding markets had been bigger than expected, and he said the central bank may need to resume increases to the Fed's balance sheet "earlier" than previously thought.

Trump assailed policy makers just minutes after their decision Wednesday to cut the benchmark interest rate by another 25 basis points.

The rate cut fell short of the more aggressive reduction in borrowing costs that President Donald Trump had demanded from Fed officials, and he reacted by blasting the central bank and its chief.

Trump has meantime kept up a stream of public attacks on the central bank's policymaking, including referring to Powell as an "enemy" and the Fed's policymakers as "boneheads".

Fed Chair Jerome Powell has previously said the Federal Reserve will continue to "act as appropriate" in order to support USA economic growth, which hints at the possibility of future cuts. The S&P 500 was last down 0.64 per cent and the 10-year Treasury note yield inched up to 1.77 per cent.

The dollar gained ground against the euro and yen.

The Fed's key rate influences many consumer and business loans. "Today's move was more of a hawkish easing in that the Fed's median forecasts for rates suggested no more cuts this year, while some officials dissented".

Powell's position is complicated by the clear division on the committee: one member, St Louis Fed's James Bullard, wanted an even steeper rate cut, while two others - Kansas City's Esther George and Boston's Eric Rosengren - opposed cutting rates at all, as they did in July.

Five others, in contrast, see rates as needing to rise by the end of the year.

"Our sense is that it surprised market participants a lot too", Powell said.

There was little change in policymakers' projections for the economy, with growth seen at a slightly higher 2.2 percent this year and the unemployment rate projected to be 3.7 percent through 2020.

A cash shortage in recent days prompted the New York Fed on Tuesday and Wednesday to pump $128 billion into the short-term market as interest rates soared and threatened to break out of the Fed's target range. And the Fed adds or removes liquidity to keep interest rates in line with the desired target.

"For now, the US-China trade war shows no sign of slowing, and the Fed will want to cushion the impact of the latest round of import tariffs", said Cailin Birch, global economist at The Economist Intelligence Unit.



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