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31 October 2019

US interest rates cut to ‘trump’ looming risk of lower economic growth

US rates were cut last night to a range of 1.5% to 1.75%. It was the third cut in four months.

James Rowbury, Investment Research Coordinator at investment management and stockbroking firm Redmayne Bentley, said:

 “The Federal Reserve’s (Fed) decision to cut rates by 0.25% yesterday came as no surprise to investors and consumers alike. The Fed Chair, Jerome Powell, has previously indicated his dovish stance of bringing rates down gradually over time, to tackle the looming risk of lower economic growth and the impact of trade wars between the US and China.

“However, in yesterday’s statement Mr Powell provided some unexpected forward guidance, stating that the current policy is “well-positioned” and the “current stance of policy as likely to remain appropriate”.

“Whilst trade tariffs and the prevailing economic growth rate have marred the headlines, one must consider the elephant in the room: debt.

“US national debt is now at its highest since the 1950s (post-WWII), standing at around 106% of GDP. Lowering interest rates have traditionally been used as a tool to encourage businesses and consumers to borrow money in periods of low economic growth. In this cycle, however, the Fed has engaged in a pre-emptive, mid-cycle, rate adjustment.

“This raises questions over the ability of both the US government and consumer to service its inflated debt pile, at the current rate. This debt accumulated during the aftermath of the Global Financial Crisis succeeded an unprecedented monetary model, a period when rates were low for a prolonged period, thus encouraging debt to inflate.

“Whilst the Fed have indicated a hold on rates, investors will be watching the forthcoming tone from the US President, Donald Trump, as to whether he increases pressure to cut rates more dramatically ahead of the US election in 2020.”

For all media enquiries please telephone 0113 200 6470 or email media@redmayne.co.uk
US interest rates cut to ‘trump’ looming risk of lower economic growth

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