Growing concerns over the potential slowdown of the US economy was confirmed on Wednesday this week as the first interest rat cut was made by the Federal Reserve (Fed) chairman Jerome Powell who cut rates by 0.25% from 2.5-2.25% for the first time since the financial crisis back in 2008 – more than 10 years ago.
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Prior to this decision US President Donald Trump has criticized the Fed for holding interest rates too high which he believes, as mentioned in his tweets, that this is giving foreign economies the edge over the US as the lower interest rates make it easier for manufacturers to sell their products.
This 0.25% cut then became somewhat of a further disappointment for both the markets and also US President Trump who was hoping for a more significant cut who then went on to tweet “As usual, Powell let us down".
Irrespective of this, the press release following the rate cut suggested that Jerome Powell was not setting a limit to the number of cuts that may occur in the future. This was in the hope that with further aggressive cuts, the US economy could keep up with China.
There has been a variety of economic data out for the US recently including the release of GDP Q2. The result came early in the week with the figure beating previous expectations set by Wall Street by 0.1% at 2.1%.
However, whilst the previous release provided comfortable figures of 3.2%, there has been suggestions that there are some underlying problems that can have some significant implications for the strength of the dollar.
Deloitte Insights has predicted that in 2020 it is likely that the economic growth the US has been bathing in will end due to a variety of factors including the tariffs imposed on the Chinese goods which act as taxes and will slow US growth and also the current budget policy which may create a spending cliff later this year.
As a result, they expect that there is a 25% chance the US may be headed for a recession next year.
Despite this, whilst there may be some economic upset for USD rates, the current strength of the ‘safe haven’ currency is good and clients who have USD may wish to discuss their options to take advantage of the rates.
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