Economic outlook, stocks in for a boost as Fed makes big rate cut

Likely further reductions in coming months will lift US economy and benefit Singapore

- Ovais Subhani

The US Federal Reserve chose to go big with its first interest rate cut in four years while signalling for more - a move that analysts see boosting Singapore's export-fuelled economy and its stock market.

The Fed on Sept 18 lowered its federal funds rate, which serves as a benchmark for interest rates in the rest of the US economy, by half a percentage point, an unusually aggressive move designed to head off an economic slowdown.

If the US central bank sticks to this stance and delivers more rate cuts in coming months - as it indicated on Sept 18 - it will not only help the consumer-driven US economy but also lift global demand, which can only benefit Singapore.

Easier monetary policy will also unlock money stuck in high-yielding short-term treasuries and bank deposits in favour of riskier assets such as stocks.

Mr Steve Englander, Standard Chartered Bank's head of global G10 FX research and North America macro strategy, said the large size of the cut reflected the Fed's strong preference to preserve job market strength in the US.

"The decision was prompted by softening labour markets and by the Fed's greater confidence in US inflation moving sustainably towards its 2 per cent target," he said.

The US unemployment rate stood at 4.2 per cent in August, up from 3.8 per cent in the same month a year ago.