For deVere Group's international investment strategist, Tom Elliott, there are winners and losers from the Fed's rate cut and US and global investors now need to revise their portfolios."Today's decision by the Fed to cut rates suggests that while the policymakers believe the economy is looking in good shape, there are also some growth headwinds on the horizon and inflation is low, so a rate cut will act as a buffer.
He continues: "Where does this leave for U.S. and international investors?"Investors can incorporate both opinions into a portfolio by owning growth-sensitive stocks and misery-loving government bonds. This multi-asset approach is standard amongst long-term investors."Specifically, the rate cut will put further downward pressure on the US dollar, with the Yen, Swiss franc and Euro likely to rise against the greenback.
"Emerging stock markets should gain the most from lower Fed rates and a weaker dollar, since the massive U.S. dollar debt many emerging market companies took on in the early years of this decade becomes cheaper to service and repay in local currency terms."US exporters should also benefit, plus the battered British Pound may get some near-term relief from a Fed rate cut, particularly as the Bank of England seems unlikely to be cutting its own benchmark rates any time soon."
Elliott concludes: "US and global investors now need to revise their portfolios to ensure that they are best-positioned to take advantage of opportunities and mitigate the risks as we enter what is likely to be a new era of rate cutting for the Federal Reserve."
Kevin Doran, chief investment officer at AJ Bell, sees the Fed move as having yielded to political pressure, via tweets: "Having been brow beaten into submission by Trump via Twitter, the implications of today's [Wednesday] rate cut go much further than the 0.25% drop in the target rate, marking a change in policy that future generations may come to rue.
"It's increasingly hard to square monetary policy on an emergency setting against a world of record employment, trend economic growth and stock markets at all-time highs. Having yielded to political pressure, the independence of central banks, upon which inflation expectations are anchored, is now arguably at risk. A successful Trump 2020 campaign increases that risk in our view and the Fed have likely just aided that outcome."
Nancy Curtin, chief investment officer of Close Brothers Asset Management, said: "As we see the first interest rate cut since the depths of the financial crisis, investors should take some relief from the comfort blanket of looser monetary policy protecting them from the global slowdown and trade tensions. It is a significant departure from Powell's focus on tightening last year, and indicates the Fed's pragmatism and flexibility when it comes to reacting to the data. No doubt President Trump will likely claim credit for the change following months of tireless pressure to cut rates in order to boost growth, but this was a prudent move.
"Expectation-beating US GDP figures last week would have given the Fed pause for thought. However the figures showed that a half-point cut would have been far too aggressive, rather than removing the need to cut rates at all. Despite low unemployment and economic growth coming in above-trend, risks abound. The Fed is still concerned about the effect of a weaker global economy and trade tensions on expansion."
LGIM's Tim Drayson believes the Fed could NIRP a downturn in the bud. "More broadly, there is little concern today about US banks' profitability. Even if there were some hit to shareholders from a move to negative interest rates, it seems likely that banks would be able to pass on negative rates as the majority of their funding comes from wholesale funding markets and large institutional depositors rather than small depositors.
So, with Donald Trump using Twitter to call for more accommodative monetary policy in ever-greater numbers of capital letters, it is very much conceivable that in the next downturn the Fed might opt for modestly negative interest rates even before resuming QE."