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The Fed cuts rates again amid low inflation. What’s keeping it down?

Image for The Fed cuts rates again amid low inflation. What’s keeping it down? pension funds

Capital Group investment professionals discuss the implications of U.S. Federal Reserve interest rate cuts, loose global monetary policy and negative interest rates.

Key takeaways
  • The dramatic shift in Fed policy should help support global economic growth.
  • Central banks in Europe and Asia also have embraced monetary easing.
  • In a long-term low-rate environment, cyclical assets look relatively attractive.

The U.S. Federal Reserve’s move to lower interest rates on Wednesday made history on several fronts. It was the first rate cut since the global financial crisis in 2008, the first reduction with U.S. unemployment below 4% and the first time since the dot-com era of the 1990s that central bankers decided to ease policy with U.S. stocks at or near record highs.

Unconventional monetary policy — in the U.S. and around the world — has become the norm. Policymakers at the Fed, the European Central Bank, the Bank of Japan and others are marching further into uncharted territory, confirming that the era of ultra-low interest rates is far from over.

On Wednesday, the Fed announced that it would reduce its key policy rate by 25 basis points to a range of 2.00% to 2.25%, bringing an end to a relatively shallow tightening cycle. In all, the Fed raised rates nine times since December 2015.