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Updated 10:46 12/12/19

Central banks begin to cut interest rates

Liam Sheasby

By Liam Sheasby, News Editor

20 Sep 2019

Wednesday saw the US Federal Reserve decide to cut interest rates for the second time in a row; from 2% to 1.75%. The move did little to surprise investors and once again drew the ire of Donald Trump, though the US President is at least now saying that Jerome Powell – Chair of the Fed – shouldn’t be sacked. Trump’s irritation is that the United States – which by most metrics is doing well – should be matching the interest rate cuts of the European Central Bank in order to not be undercut in terms of export pricing.

The Bank of England also had their rate meeting yesterday, and kept interest rates at 0.75%, holding out for some sort of Brexit resolution before making any changes. Given the UK economy is growing just fractionally however (0.3% GDP growth as per the last data released), rate cuts might be inevitable in the coming months to help encourage investment in Britain – regardless of Brexit’s outcome.

The Bank of Japan had a similar outlook to the BoE on Thursday; growth is present but slow, and the Japanese economy may need the BoJ to intervene to maintain growth.

The Organisation for Economic Co-operation and Development (OECD) has also chimed in, slashing their growth forecasts for both 2019 and 2020 to the lowest levels since the financial crisis a decade ago. The organisation warned that the world is falling into a prolonged period of weak growth, and government action is needed to combat it.

Interest rate cuts could mean a rise in the gold price in the coming weeks and months, with lower rates drawing attention to economic fragility and the risk of negative growth or currency devaluation.

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