Rate Cut Doesn’t Spur ETFs Or Ease Recession Fears

The Federal Reserve met this morning to deliver a surprise half-point rate cut, but so far, recession fears still rule over exchange traded funds (ETFs).

The cut is part of a coordinated global effort to make rate cuts, reports Glenn Somerville for Reuters. The European Central Bank, Bank of England and Swiss, Canadian and Swedish central banks also performed their own rate cuts.

The federal funds rate is now at 1.5%, while the discount rate is 1.75%.

The rate cuts have caused the U.S. dollar to weaken against other major currencies, the Associated Press reports. Cutting interest rates can help stimulate economic growth and deliver a confidence boost to the markets. But the downside is they can also undermine a currency as investors seek better returns elsewhere. The U.S. rate is now the second-lowest among the majors, higher only than Japan.

Oil prices were driven higher this summer by a lower dollar that made it cheaper for other countries to buy the fuel, but today it’s down below $88 a barrel. The price fell after the government reported an unexpected jump in inventories, reports Stevenson Jacobs for the Associated Press.

Traders sold on the news, seeing it as yet another sign that consumers and businesses are cutting back on their energy use.

ETFs trading lower this morning:

• United States Oil (USO), down 4.2% year-to-date (black line)
• PowerShares DB U.S. Dollar Index Bullish (UUP), up 5.1% year-to-date (green line)

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