The Federal Reserve, or the Federal Open Market Committee to be more accurate, has decided to cut the federal funds rate for the third time in a row Wednesday. The rate had already been cut twice in August and September. Before, the last rate cut had occurred in December 2008. In its official statement, the Fed cited “implications of global developments for the economic outlook as well as muted inflation pressures” as the reasoning behind the 0.25 point cut in August. Since then, the target range for the federal funds rate of 2.00 to 2.25 percent has been reduced to 1.50 to 1.75 percent.
Federal Reserve Chairman Jerome Powell had said after the first cut that it was made to “ensure against downside risks” and shouldn’t necessarily be interpreted as “the beginning of a long series of rate cuts”. Yet, two more cuts happened in short succession. Even though Powell later walked back on his statement, saying that he didn’t rule out further cuts, it was enough to send markets downwards then. The most prominent voice in favor of more significant easing is U.S. President Donald Trump, who was reportedly not happy with the extend of neither the first nor the second cut.
As the following chart shows, the European Central Bank lowered the interest rate for main refinancing operations to 0.00 in March 2016 and has kept it there ever since. In the meantime, the United States had seen eight rate hikes before cuts started in August, of which seven took place after Donald Trump took office in January 2017.