Rates cut by 25bp

  • FOMC cut rates by 25bp
  • Equity indices fell off
  • Fed decides to end balance sheet run off in September

The Fed decided to cut rates today with the message that ‘this action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.’

In relation to the balance sheet run off suspension, Powell said ‘The Committee will conclude the reduction of its aggregate securities holdings in the System Open Market Account in August, two months earlier than previously indicated.’

Equity indices sold off on the cut most probably as a reflection of declining fundamentals. On top of this, there has been some trouble on the trading desk of the New York Fed, which usually steps into the market to protect against large plunges. The market may have therefore been affected by this.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range for the federal funds rate at
2-1/4 to 2-1/2 percent.

You can read the official statement here.