Bank of Canada unlikely to follow any Fed interest rate cut

2 2017 US President Donald Trump walks with Jerome Powell Federal Reserve chairman at the White House.—AFP

Another challenge will be to explain why the committee went ahead with a cut despite a slew of positive news.

A significant minority of traders, meanwhile, expected a half-point cut, according to CME data, so they'll be disappointed, too - even though buoyant stock and credit markets are hardly crying for help. But none expressed support for any additional easing, as Trump and Wall Street want.

"I would like to see a large cut and I would like to see immediately the quantitative tightening stop", he said.

In a statement at the end of a two-day policy meeting, the Fed said it chose to cut rates "in light of the implications of global developments for the economic outlook as well as muted inflation pressures". But it's not clear borrowers, particularly individuals, will see lower lending rates this time around. Ordinary inflation has been very low over the last decade of low rates, but asset prices have been super-charged.

Powell can then use his press conference to further shape rate expectations.

With everyone unsatisfied, the question is what happens next: Was this a "one and done" insurance-like rate cut, or a more dovish decision that's just the beginning? "He is not shutting the door, but he is also not saying there is another one coming in September, so hold on", Polcari said.

President Donald Trump in recent weeks has pressured the Federal Reserve - with a series of bashing tweets - to make a rate cut.

"There are certainly advantages to telegraphing a major change in interest rate policy, and this cut was certainly that as it was the first cut in over 10 years", said Chris Gaffney, president of World Markets, TIAA Bank.

The quarter-point cut the Fed announced Wednesday was widely expected.

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The cut will likely placate President Trump, who frequently belittles the Fed, and its chairman, Jerome Powell, for raising interest rates too high, too quickly - but also raised questions about whether the USA central bank is truly independent, given the stronger-than-expected economic data out of the the past few months.

After initially having little reaction the Fed's policy announcement at 2 p.m., stocks started sinking after Powell began speaking at about 2:30 p.m.

The Dow Jones Industrial Average (DJIA) fell by 1.23% at the closing bell Wednesday, losing 333.75 points - its worst day since May. It was down as much as 478 earlier.

Weeks of speculation were put to rest Wednesday when the Federal Reserve announced a quarter-percent interest rate cut in its mid-year assessment of US economic health.

In approving the cut - the range is now between 2 percent and 2.25 percent - the US central bank cited "the implications of global developments in the economic outlook as well as muted inflation pressures".

Such rhetoric fuels market caution, adding to the sense that a US-China trade deal remains far from imminent, even as negotiations are underway in Shanghai. In a statement, the Fed pointed out that the US economy has seen steady growth, with the unemployment rate remaining low and household spending increasing from earlier in the year. On the flip side, Barrington said those higher interest rates from financial services startups are likely to stay high because they are driven by a desire to attract customers, not Fed rates.

"This is the most dissent we've had in the current Fed; we had two hawkish dissenters on this decision", said Eric Donovan, managing director of over-the-counter foreign exchange and interest rates at INTL FCStone.

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