SCIENCE OF WEALTH

Perspectives on the Fed rate cut, gold and the US dollar

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A US recession and/or a deterioration of labour markets, both of which are inherently disinflationary, could allow the Fed to cut rates more proactively. PHOTO: REUTERS

THE US Federal Reserve cut rates as expected, but all the action happened prior to the reduction itself. The latest cut was no surprise, as Treasury yields both on the short and long end continued to decline from July.

Despite the fact that interest rates fell, the US dollar has strengthened. The currency has gained for several months now. Despite that, prices of gold and other traditional risk-off assets, as well as of all major risk assets, have continued to climb. It is almost too good to be true.

The Fed has a dual mandate to keep inflation at bay and aim for full employment.

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