US Dollar Dead as Federal Reserve Slashes Interest Rates

Bang bang. Or should we say, “cut, cut”. Either way, the US dollar’s dead.

We were two-thirds right in our predictions yesterday. The Fed cut both the funds rate and the discount rate by 50 basis points—exactly as we said they would. The cut in the Fed Funds rate to 4.75% is the first in four years and represents a new, disreputable phase in the shabby career of the US dollar. The discount rate—what the Fed charges banks to borrow money—was also lowered 50 basis points to 5.25%.

What now?

The US stock market rallied, with the Dow Industrials up 335 points for the day and the broader S&P adding on 43 points. Aussie stocks are up early too, as is the Aussie dollar (nearly two cents). But the telling gains were in oil and gold.

Light sweet NYMEX crude closed up 94 cents and 1.17% for the day. It now trades at US$81.51—an all time high. Keep in mind that the spot price of oil was US$55.10 on January 17th of this year. If you’re scoring at home, that’s a 48% increase in price from the 52-week low. Oil’s strength is the dollar’s weakness.

“Ultimately we see the funds rate at at least 3.75% and maybe lower. The Fed’s path ahead is clear,” said PIMCO’s Bill Gross in an interview on Bloomberg TV. Gross mentioned what we cited yesterday. The Fed’s real concern is a recession—thus the double barrelled rate cut.

Dan Denning
Markets and Money

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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1 Comment on "US Dollar Dead as Federal Reserve Slashes Interest Rates"

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Tony Glavin

Don’t agree with dollar being dead. When Fed cut rates in 2001, the dollar had being falling heavily for the month previous, once the first cut happened, the dollar rallied hard for the next 6 months. What’s different this time, Internet bust the last time, housing bust this time…

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