(Bloomberg) -- The Federal Reserveās bold start to cutting interest rates and its determination not to fall behind the curve in easing has reshaped the policy horizon for counterparts spanning the globe.
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In Europe and most other developed nations ā where officials tend to insist that decisions in Washington donāt affect their own policy trajectory ā comfort might be taken in Fed Chair Jerome Powellās declaration Wednesday that the US economy remains in good shape.
In emerging markets, the Fedās half percentage point cut offers reduced pressure on exchange rates that have felt the impact of the highest US borrowing costs in decades. That offers space to recalibrate their own rate settings ā as Indonesia did in a surprise cut just ahead of the Fed.
Powell and his colleagues faced some risk of spooking the public into perceiving that recession risks were rising by cutting more than most economists anticipated. Instead, he offered reassurance, saying the Fedās patience in not moving until now had paid ādividendsā by boosting confidence inflation ā which had surged to the highest since the 1980s ā has been tamed.
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Wednesdayās move was āa sign of our commitment not to get behindā the curve, he said. Investors initially reacted with confidence, though US stocks closed with modest declines.
āThe half-point cut by the Fed will ripple through other central banksā interest-rate decisions and lead market participants to conclude that the US economy is slowing, perhaps leading to a global slowdown,ā said Stefan Gerlach, chief economist at EFG Bank in Zurich and a former deputy governor of the central bank of Ireland.
It might tempt the European Central Bank to consider lowering rates again next month, for a third time since June, an option āit has firmly sought to push back against,ā Gerlach added. It will probably also put the Swiss National Bank in an āacutely uncomfortableā position, given policymakers there are already concerned about a strong franc.
Policymakers led by President Christine Lagarde are going out of their way to stress they decide on policy independently. In the run-up to the ECBās first rate cut in June ā when the US economy was still running hot ā Lagarde insisted that the move would be inspired by data, not the Fed.