Fed Announces Rate Cut, Stock Market Tanks

This week the Federal Reserve announced a reduction in the interest rate of 0.25%, bringing it down to between 2.0 and 2.25%. Concurrent with the rate cut, the DOW declined by 736 points in 4 days. This came after a milder decline the previous week.

Typically, a reduction in the interest rate is coupled with a rise in the stock market. Why is it different this time?

Some are pointing to Trump’s announcement of additional tariffs on Chinese goods. However, that announcement was made the day after the rate reduction. The day of the announcement was the same day that saw the largest decline in the market.

The two factors that influenced the decline were: 1- The reduction was not nearly as much as many investors had desired. 2- The announcement of the reduction was accompanied by a statement by the Fed chairman that this will NOT be the beginning of a series of reductions.

Granted, he did not state unequivocally that there will not be any future reductions, he just made clear that this is not the plan at this time.

Basically this announcement means, that while interest rates remain extremely low, the era of free money is over. Large investors and corporations have been forcing an artificial high in the stock market for years now and had hoped to continue that trend. They had even hoped interest rates would reach negative territory, as has happened in some other countries. Which would literally mean they could get paid to borrow money. (Yes…