Why did Interest Rates go down?!

[heybro]

I was just getting excited about interest rates going up again.  And then they go and lower them!

WHY!

[reeshau]

Because they lowered rates in Europe.

Because the various trade wars are slowing the economy.

Because Trump has been chastising the Fed for raising rates.

Take your pick.  It would not seem to be because inflation is running too high.  I find it more concerning that they have felt the need to change direction so quickly--that's the unprecedented thing.  But so is a potential currency war on this scale, with China choosing it as a weapon of choice to respond to US tariffs, and the Euro about 15% underpriced relative to GDP, given their negative government bond rates.

[vand]

Mainly because of political pressure from Trump who wants a weaker USD

[PDXTabs]

Because when people are afraid they bid up bonds, which pushes down rates.

At the global level people are starting to get fearful, and we sell US Treasury bonds on the global market.

EDITed to add - and to some extent the US Bonds are more attractive than everywhere else, which drives up demand and drives down rates.

[tarheeldan]

The FOMC cut the target federal funds rate in order to support a sustained economic recovery amid headwinds from rising protectionism and weakness in the manufacturing sectors of many countries, both of which are related. The International Monetary Fund recently downgraded its economic outlook for the year, citing these factors. Specific points of uncertainty leading to diminished investment include the US-China trade war, US-EU disputes over aircraft subsidies, US-India trade issues, and of course Brexit - a heightened downside risk given new PM Boris Johnson.

Here are PMI indexes for various manufacturing sectors. Readings below 50 indicate contraction:
Eurozone 46.5 https://global-premium.econoday.com/byshoweventfull.asp?fid=499934&cust=global-premium&year=2019&lid=0&prev=/byweek.asp#top
Germany 43.2 https://global-premium.econoday.com/byshoweventfull.asp?fid=500087&cust=global-premium&year=2019&lid=0&prev=/byweek.asp#top
France 49.7 https://global-premium.econoday.com/byshoweventfull.asp?fid=506673&cust=global-premium&year=2019&lid=0&prev=/byweek.asp#top
Japan 49.4 https://global-premium.econoday.com/byshoweventfull.asp?fid=504514&cust=global-premium&year=2019&lid=0&prev=/byweek.asp#top
China 49.9 https://global-premium.econoday.com/byshoweventfull.asp?fid=501271&cust=global-premium&year=2019&lid=0&prev=/byweek.asp#top
United States 51.2 https://global-premium.econoday.com/byshoweventfull.asp?fid=499014&cust=global-premium&year=2019&lid=0&prev=/byweek.asp#top

The Fed did not cut rates due to concerns over inflationary pressures, which remain muted. Their preferred measure is the Core PCE, which rose just 1.6% year-on-year in June
https://global-premium.econoday.com/byshoweventfull.asp?fid=498834&cust=global-premium&year=2019&lid=0&prev=/byweek.asp#top

Central bank independence is necessary for the effectiveness of monetary policy, and Fed Chair Powell  - along with the rest of the FOMC members - doubtless understand that. Powell has stated multiple times that the FOMC would not react to any political pressure from the Executive. In other words, the Fed cut rates not because the President wanted them to, but because the President put downside risks on the economy that they then had to react to (trade wars, unpredictability).

I'll add that, while U-3 indicates very little labor market slack, broader measures of unemployment paint a dimmer picture:
https://www.bls.gov/news.release/empsit.t15.htm

[MustacheAndaHalf]

Mainly because of political pressure from Trump who wants a weaker USD

If that were true, interest rates would take a much stronger beating.  The reason U.S. treasuries are so valuable is that the President can't meddle with the Fed.  So here's what the FOMC actually said:
"In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent."
https://www.federalreserve.gov/newsevents/pressreleases/monetary20190731a.htm

[habanero]

To prolong the cycle. Fed cutting rates with unemployment at all-time-low and stock markets around all-time-highs is, well, uncharted territory. If watching the press conference it's easy to see Powell struggles - like he doesn't believe in what he's saying. But he knows if they don't deliver, equity markets will tank. And so will bond markets.

[svosavvy]

JMO-cutting rates here sends the market a message of fear rather than greed.  Rates are already super low I can't imagine too many deals that hung on getting that 25 basis points.  Instead, it is telling the market rates are coming down hence recession coming.  I mean really, where are we gonna go from 2% down to 0% again?  If they wanted some heat they should have printed more instead.  You could print some then increase the rate.  A rising rate that is not punitive gives confidence IMO.  Talking about going up to 3-4% not 6,7,8.  our lending standards are super solid since the subprime and seems the only financial bubble is student debt.  That would be a total riot if everybody just stopped paying that, would be epic on banks.  Companies bought back stock instead of expanding to increase their earnings thus lower their P/E through higher earnings.  Peter Lynch nailed it 30 years ago when stated most of the time companies buyback at high prices thus being poor stewards to the shareholder via "institutional imperative."  Although lowering the rate does force savers into more risk.