On 31 July 2019 the US Federal Reserve cut the Fed Funds rate, marking not only a shift in monetary policy in today’s environment, but also a paradigm shift in the bank’s approach. Policy makers explained their goal as being to “extend expansion” and recently described their approach as an “ounce of prevention is worth a pound of cure”.
Their view expresses that, in an already low rate environment, the need to act early becomes more acute. In this approach, easing policy in advance of negative data is executed as an “insurance cut”.
We believe the Fed is taking a risk – one we hope works – in shifting from reactive to pre-emptive monetary policy. It was not that long ago that the Fed was more forthright about the uncertainty inherent in economic forecasting as Chairman Powell used the analogy of walking into a dark room and slowing down to avoid furniture as an analogy for the Fed’s situation. Today, they seem more certain that they know the future and aim to alter it. We hope this approach works as the consequences for failure seem more pronounced than the end of a single economic expansion.
The value of investments and any income derived from them can go down as well as up as a result of market or currency movements and investors may not get back the original amount invested.
Changes in rates of exchange may reduce the value of your investment.
Changes in interest rates can affect the value of fixed interest holdings and may adversely affect the value of your investment.
Use our handy glossary to look up any technical jargon you are unfamiliar with.
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