US interest rates have been cut for the first time since 2008 amid concerns about the global economy and inflation.
The US Federal Reserve announced a cut of 0.25%, which had been widely anticipated by the markets, but hinted that it was ready to lower borrowing costs further if the economy required it.
The cut lowered the Fed’s benchmark overnight lending rate to a target range of 2.00% to 2.25%.
In a statement following a two-day policy meeting, the Fed said it had decided to cut rates “in light of the implications of global developments for the economic outlook as well as muted inflation pressures.”
The central bank said it would “continue to monitor” the effects of incoming information on the economy, adding that it “will act as appropriate to sustain” US economic expansion.
Despite the intention of weakening the currency, the rate cut pushed the dollar up to its highest level against the euro in over two years to $1.063.
In the press conference after the announcement, Federal Reserve chair Jerome Powell called the cut a “mid-cycle” policy adjustment, rather than being at the start of a rate-cutting cycle.
Analysts said that US banks and other lenders may resist passing on lower rates to consumers on products such as mortgages credit cards.
They also said the rate cut would probably have a limited effect on the market, because it was so widely expected.
Adrian Lowcock, head of personal investing at investment platform Willis Owen, said: “The market has priced in two to three cuts in US interest rates which, combined with restarted trade negotiations with China, has helped support global markets.
“US GDP also came in slightly higher than expected, suggesting that the global economy is in fairly good shape.
“As such, today’s move is unlikely to have much impact on markets as it was all but priced in.
“Instead, the key is whether or not the US Fed is going to follow expectations of the market and make further cuts.
“As has recently been the case, it may prove to be that what the Fed says is perhaps more important than the cut itself.”
The Fed said the rate cut should have the effect of sustaining the expansion of economic activity and a strong labour market as well as help return inflation to its 2% target.
John Bellows, portfolio manager at Legg Mason affiliate Western Asset, suggested the rate cut signalled the Fed was moving towards trying to “re-establish credibility” regarding control over US inflation.
He said: “If the Fed has truly shifted its focus to inflation, then this may not be its last such move.
“US inflation is unlikely to pick up materially in the coming months.
“The experience in Europe and Japan highlight the downside risks to inflation, which [Fed chair Jerome] Powell and [vice chair Richard] Clarida have talked about recently.
“The Fed has a considerable amount of work to do with regards to inflation, and that could very well mean a series of cuts over the coming quarters and years.
“One thing seems sure – if the Fed is truly serious about regaining its inflation credibility, then it is quite unlikely to hike rates any time in the foreseeable future.”
The Fed said in its statement that it continued to regard the US labour market as “strong” and added that household spending had “picked up.”
But it noted business spending was “soft” and that measures of inflation compensation remain low.
US markets fell after the Fed announcement at 2pm Eastern time (1800 GMT).
Within an hour, the S&P 500 index was down 1.5% and the Dow Jones Industrial Average had fallen 1.6%, to 26,765.
The Nasdaq composite index fell 1.8%.
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