What's moving markets today: September 18, 2019
Market expectations for a rate cut had fallen in recent days, and still the central bank lowered rates. But this wasn't good enough for President Donald Trump.
Trump has long been critical of the central bank and its chairman, Jerome Powell, demanding lower rates to boost the economy. Last week, Trump even called for rates of zero or less.
It's not exactly a civil war in the ranks of the Federal Reserve. But three members of the central bank's rate-setting Federal Open Market Committee voted against the decision to lower interest rates by a quarter of a percentage point.
Such dissension is highly unusual. In fact, the last time this many members voted against the majority was in September 2016 -- when three Fed hawks voted for a rate hike. At the time, the Janet Yellen-led Fed decided to hold rates steady.
Interestingly, two of the Fed members that voted for the increase three years ago -- Kansas City Fed chief Esther George and Boston Fed president Eric Rosengren -- indicated they would have preferred that the Fed held rates steady this time around. (Cleveland's Loretta Mester was the other dissenter in 2016 and she too wanted a rate increase back then.)
But at Wednesday's meeting, the other dissenter didn't side with George and Rosengren. St. Louis Fed president James Bullard, one of the more dovish members of the FOMC, said he wanted the FOMC to cut rates by a half of a percentage point.
These dissents clearly show that the Fed is just as confused about the state of the US (and global) economy as is the rest of the market.
Inflation pressures remain muted ... but the recent spike in oil prices could change that. More tariffs could thrust the economy into recession ... but the US and China have each taken steps to ease tensions in the trade war. With that in mind, it's no surprise that the Fed will need to remain data dependent -- even if President Trump keeps complaining about Fed chair Jerome Powell on Twitter. Buckle up!
Lowering interest rates is the very definition of dovish monetary policy. Yet, the Fed's decision to cut rates by a quarter percentage point wasn't seen as dovish enough.
This lends more credence to the idea that the central bank is just making a mid-cycle adjustment to its policy, rather than embarking on a new easing cycle.
Powell has so far said as much, stressing that the bank was considering an array of factors in making its decisions.
The market reaction was rather muted to a second interest rate cut in a row by the Federal Reserve.
US stocks briefly pared some of their losses but remained in negative territory.
The US dollar, measured by the ICE US Dollar Index, bounced slightly higher. The gauge is up 0.2% at 98.43.
The yield on the 10-year Treasury bond slipped to 1.7526%.
The Federal Reserve cut interest rates for the second time in two months amid growing worries about a potential global slowdown.
Officials also left the door open for a further rate cut this year, reinforcing the message by Fed chairman Jerome Powell that policymakers would do whatever necessary to prevent a recession.
The federal funds rate, which controls the cost of mortgages, credit cards and other borrowing, will now hover between 1.75% and 2%.
It's a brutal day for FedEx (FDX) shareholders. The stock was down more than 13% in midday trading after warning of a weak outlook. That puts FedEx on track for its worst drop since the dog days of the Great Financial Crisis. Shares plunged 14.5% on December 9, 2008.
But the stock has suffered another double-digit percentage drop not that long ago. FedEx plummeted 12% on December 19 of last year too after it first warned that global trade tension was hurting its results.
CEO Fred Smith said Tuesday he was worried that many in the US "were whistling past the graveyard" and ignoring global threats to the American economy. It looks like FedEx investors are painfully aware of those risks though.
There's a "very high likelihood that the Fed will cut today," Matt Diczok, fixed income strategist at Bank of America, told Paula Newton on CNN Business' digital live show Markets Now.
And the central banks should keep cutting rates for the next two meetings as well.
"What we're starting to see is that the global slowdown that started overseas ... is finally coming to the US," he said.
This is what the Fed has been concerned about and its aim is to keep the economic expansion going.
Market liquidity has also been on investors' minds this week, as the New York Fed injected liquidity into the market twice in the last two days.
But Diczok is less concerned, saying the requirement for Fed liquidity is the result of a technicality. Credit and stock markets didn't really react to it either, he said.
Following a large issuance of Treasuries and a squeeze of investment reserves, overnight lending rates jumped higher at the start of this week.
Why is the attack on Saudi oil production such a big deal, when America has become a huge oil producer and exporter?
"Saudi Arabia is the central bank of oil," said CNN Business' own Matt Egan on our digital live show Markets Now.
Although the kingdom calmed nerves and sent oil plummeting yesterday by saying its production was coming back online, Egan noted some reports say a ramp-up will be slow. Saudi oil may only be operating at 90% by the end of the year.
The Federal Reserve's interest rate decision is due soon and expectations for a quarter percentage point cut are at 70%, according to the CME FedWatch Tool.
But if the Fed doesn't budge today, the market will tank, said Alan Valdes, senior partner at Silverbear Capital on the CNN Business digital live show Markets Now.
Valdes expects a cut today, one more in October and another one before year-end. But Fed Chairman Jerome Powell is unlikely to telegraph further details, he said.
"A lot depends on inflation, a lot depends on consumer confidence, which has been weaker," Valdes added.
Consumers are the backbone of the American economy, but of late, worries about the US-China trade war have been seeping into consumers' minds.