The Fed lowers its rates by a quarter of a point

The decision comes as New York has been in a liquidity crisis since Monday.

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The headquarters of the FED in Washington.
The headquarters of the FED in Washington. Leah Millis / REUTERS

The Federal Reserve (Fed) has as expected lowered its key rates by a quarter point on Wednesday, September 18, after two days of meeting. The short-term money rent is now in the range of 1.75% to 2%. This is the second drop of the year, after that decided in July, and the end of the bull cycle proclaimed in January.

The US central bank hoped until the end of 2018 to normalize its monetary policy, ten years after the great financial crisis. It had resumed the rate hike in December 2015 and had last raised it in December 2018. The rent for silver was then in the 2.25 / 2.5% range.

Read also Fed injects $ 53 billion in cash into the financial system

But it was caught in a triple trap: the financial markets, which have unscrewed, demanding cheaper money; inflation, which can not be found and is below the 2% target; the commercial policy of Donald Trump, which led the industrialists of the planet to stop investing.

Lack of cash

Logically, Donald Trump demands from the Fed that it flies to his rescue and the central bank has de facto obeyed, prisoner of his mandate, which enjoins him to ensure the stability of the prices and the full-employment (via the growth) . It does not matter, basically, that Donald Trump is one of the causes of the slowdown

Wednesday's decision was taken as the day-to-day money market has been faded since Monday: there is not enough liquidity on the market, and the Fed has been forced to intervene twice Tuesday and Wednesday to offer up to $ 75 billion in cash to banks.

This monetary gap is due to technical reasons: US companies paid their taxes and banks bought Treasury bills, which dried up dollar liquidity in the market. Nevertheless, this mess recalls bad memories, those of the crisis of 2008, when the financial world has experienced serious liquidity crises.


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