By Stefan Gleason, Money Metals Exchange
Following months of cajoling by the White House, the Federal Reserve finally cut its benchmark interest rate. However, the reaction in equity and currency markets was not the one President Donald Trump wanted – or many traders anticipated.
The Trump administration wants the Fed to help drive the fiat U.S. dollar lower versus foreign currencies, especially those of major exporting countries.
Instead, the U.S. Dollar Index rallied throughout July ahead of the expected rate cut and continued rallying after Fed chairman Jerome Powell made it official on Wednesday.
In fact, the Federal Reserve Note broke out to its highest level since early 2017.
The Fed also announced it would end its balance sheet reduction program a month earlier than originally scheduled.
These dovish policy changes apparently weren’t dovish enough. The central bank could have gone for a 50-basis-point cut instead of the more routine quarter point cut it delivered. It could also have announced a new Quantitative Easing program.
Perhaps the biggest market-moving disappointment (equity bearish, dollar bullish) was Fed Chairman Jerome Powell shooting down the idea of an extended rate-cutting cycle.
In his press conference, he described the cut as “mid-cycle adjustment” that didn’t necessarily imply follow-up cuts.