The Federal Reserve lowered interest rates by 25bp for the first time since 2008 and instead of sliding, the USA dollar rallied.
With this cut, the Fed hopes to sustain the expansion of economic activity, although it also cautions that uncertainties remain about this outlook. That rate, which affects many consumer and business loans, is now in a range of 2.25% to 2.5% after nine quarter-point rates increase from December 2015 to December 2018. Prices of short-term US government bonds fell after the announcement, sending yields higher.
The Dow Jones Industrial Average, which had been almost flat before the announcement, was off more than 300 points about an hour later just as Federal Reserve chairman Jerome Powell was holding a news conference.
This cut would be the first since December 2008 during the height of the financial crisis and Great Recession. "Lower rates, combined with President Trump's pro-growth policies, is exactly the prescription we need to push our economy to new heights".
U.S. -China trade talks remain stalled, with Trump's tariffs on $250 billion in Chinese goods still in place.
The July Fed meeting also revealed that the FOMC will cease the winding down of the balance sheet on August 1 - effectively ending what was known as "qualitative tightening", or QT.
From mortgages to credit cards, banks and other lenders may resist offering substantially lower rates to consumers, analysts said, despite the central bank's widely expected cut, which pulls its target policy rate down to between 2.00% and 2.25%. That group includes two current FOMC voters, Kansas City's Esther George and Boston's Eric Rosengren, so resistance could spur two dissents.
It also prompted Trump - who's blasted the Fed for hiking interest rates last year, then failing to cut this year in the face of a slowdown - to reiterate his displeasure with the central bank, and the man he selected to lead it. 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.
The move would come despite a strong U.S. economy. "Policymakers may want to wait for more economic data, and take time to make better sense of the domestic economy before making a decision", she said. As a result, a Fed rate cut will likely be passed along to vehicle buyers within weeks, Rick says.
Market participants are looking to the Fed's statement at the conclusion of its two-day meeting on Wednesday for clues as to how the central bank will proceed through year-end.
Mr Powell warned that global growth had been "disappointing",.
When the Fed was raising rates, the higher borrowing costs didn't always get passed to auto buyers because manufacturers offered discounted financing to encourage vehicle sales.
Powell and other Fed officials in recent weeks have walked a middle ground, flagging risks like continued uncertainty on the global trade front, low inflation and a weakening world economy, but repeating the view the United States is fundamentally in a good spot. In fact, considering that Powell feels "nothing in the U.S. economy poses a major near term threat", he's telling us that there may not be a need for another rate cut this year.