The US Federal Reserve just cut its interest rate by 0.25% to a range of 2% to 2.25%. How should we invest now?
What Does The US Federal Reserve Do?
If you’re not aware, the US Federal Reserve is the American central bank, the equivalent of our Reserve Bank of Australia (RBA). It has five key functions:
It conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy;
It promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad;
It promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole;
It fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments;
And it promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.
In summary, it’s important for financial stability.
US Federal Reserve Cuts Interest Rates
For the first time in over a decade the US Fed has decided to cut its interest rate because of worries about the global economy and trade disputes.
The President Donald Trump has been badgering the Fed to lower interest rates to support the US economy and, many people would argue, to soften the damage of his trade dispute with China.
Fed boss Jerome Powell put out confusing statements about whether he planned this cut to be a one-off or whether there would be further cuts over the next year. But he did indicate that weak inflation, weaker European & Chinese economies and the trade war could cause another rate cut.
The US market was actually expecting the US Fed to signal it was going to do more cuts, which is why the USA’s S&P 500 Index (.INX) fell by 1.09% on Wednesday.
How Should We Invest?
As always, I think we need to stick to investing in high quality businesses at the right price for the long term. Lower interest rates do mean investors can justify paying slightly higher prices than before, but I wouldn’t assume interest rates are always going to be this low.
The reliable shares in the free report below could be at the right price for a buy today.
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