European shares tracked Wall Street and Asian markets into the red on Thursday after the U.S. Federal Reserve dampened hopes of future cuts in U.S. interest rates.
The Fed as expected cut interest rates by a quarter of a percentage point on Wednesday, but Chair Jerome Powell disappointed investors by saying the move might not be the start of a lengthy campaign to shore up the economy against risks including global weakness.
Well, that scenario played out. Granted, the actual statement came out just as the market had anticipated, with a 25bp cut to the fed funds rate, a formal end to its balance sheet normalisation program (QT) and two dissenters (George and Rosengren were against easing). With a narrative that the board will “act as appropriate to sustain the expansion”.
This, in itself, gave us a feel we were leaning to a hawkish cut, but things got spicy in markets when Powell spoke. The focal point of what we initially heard was this 25bp cut was a “mid-cycle adjustment to policy”, and that this was an insurance cut to keep in check the fallout from considerations such as trade. That we should not just consider that we had a 25bp cut, but it should be taken into context of the broader trend in policy, with the move to a patient stance, which is now accommodative, and that in itself is providing a more holistic support cushion to a resilient US economy.
It was a cut that many saw a really just taking out the December hike.