Yesterday Jerome Powell, Head of the Federal Reserve Bank of the United States, gave his formal testimony regarding the country’s monetary policy. Moreover, the Federal Reserve also released the minutes from their most recent policy meeting on the same day.
The overall summary of both events points to one clear conclusion: there will be an interest rate decrease before the end of the month. This will be the first interest rate cut since the global economic crisis in 2008. It is expected that the rate will be adjusted by 25 basis points rather than 50. This is a minor change that would be in line with the Fed’s careful wait-and-see approach to monetary policy.
Analysts are somewhat uncertain what exactly is driving the dovish change in the Federal Reserve. The economy of the United States has not experienced as many ups and downs as other developed countries, even as it waged a trade war with China. However, the increase in unemployment for the first time in years and a few other lukewarm reports indicate that Trump’s aggressive policy is beginning to show a negative effect on the US economy.
Thus, the Federal Reserve is seeking an interest rate decrease to prepare the economy for a shaky road ahead. The trade dispute with China remains unresolved, while Trump has also eyed the EU with similar tariff plans. Brexit might also influence global trade, while the economic slowdown in China is generally affecting everyone.
