US Federal Reserve cuts interest rates

Jerome Powell

Enlarge Image Jerome Powell Getty Images

European stock markets pushed higher Thursday as traders had their first chance to respond to the U.S. Federal Reserve's widely anticipated decision to cut its benchmark interest rate for the second time this year.

Among ongoing risks are the continuing uncertainty over Brexit and notes that trade policy uncertainties "have waxed and waned" since the last meeting in July.

The markets seem to be loving what the Fed Chair is saying and the US Dollar is adding to its gains.

The policy statement and updated quarterly forecasts will be released at 2 pm in Washington and Chairman Jerome Powell will brief the press 30 minutes later.

New projections showed Fed policymakers at the median expected rates to stay within the new range through next year.

Kansas City Fed President Esther George and Boston's Eric Rosengren are likely to dissent, as they did against the rate cut in July, favoring no move.

Just past year, the Fed was tapping on the economy's brakes.

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The committee could ratify the view that rates will be lower for longer by edging its estimate of the so-called neutral rate which neither spurs nor brakes the economy.

An index of manufacturing activity for August reflected contraction for the first time since 2016.

"They have been using boilerplate language "solid" in describing the labor market, but that's becoming harder to support and could be downgraded", said Neil Dutta, head of U.S. economics at Renaissance Macro Research. "We are not on a pre-set course, we are going to be making decisions meeting by meeting", Powell said, adding that the Fed would stop cutting rates "when we think we've done enough".

Consumer confidence continues to drive US economic activity, Fed Chair Jerome Powell and says the FOMC chose to cut the federal funds target rate by a quarter of a point to help keep the economy strong and as "insurance against ongoing risks".

The effective or average interest rate on what banks charge each other to borrow reserves overnight fell to 2.25% on Wednesday, from 2.30% on Tuesday, which was above the Fed's current target range of 2.00%-2.25%, according to the N.Y. Fed data.

It could make another adjustment to the interest rate it pays on excess reserves by reducing it by more than amount it cuts the fund rate.

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

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