US Fed Lowers Rate By 0.25%; Signals Pause In Easing Cycle

On Wednesday, the US central bank reduced interest rates for the third time this year while signalling a pause in rate-cut cycle. At the same time, it drifted away from its earlier viewpoint made in the policy statement that it will 'act as appropriate for sustaining economic expansion' and instead held that it will "monitor the implications of incoming information for the economic outlook as it assesses the appropriate path" of its target interest rate.

The Federal Reserve reduced the key policy rate by 0.25% to a range of 1.5-1.75% such that the US economy weathers the current slowdown including global trade spat and does not enters the recessionary phase.

The Fed iterated that the US is witnessing a surge in economic activity at a moderate pace while labour markets have also remained strong. Further, it said that exports and business investment continue to be weak.

The US economy is currently reeling in an unusual situation with moderate inflation rate, unemployment at near 50-year low level and GDP growth in the third quarter at 1.9%, which is slower in comparison to the first half of the year, nonetheless it is not as steep as estimated by some of the Fed officials and economists.

Manufacturing, in particular, has been hit largely in the last few months owing to the global slowdown and ongoing US-China trade war.

The earlier rate cut was made for reducing borrowing costs in light of the implications of global developments for the economic outlook as well as muted.

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