Monday Market Minute | Sep 23, 2019

Fed cuts again — second reduction brings rate to 1.75-2.00%

What Moved

The Federal Reserve cut rates by 25 basis points on September 18, bringing the target range to 1.75-2.00%. The decision was split, with two dissents for holding and one for a larger 50-basis-point cut. The repo market simultaneously experienced unexpected stress, with overnight rates spiking above 10% — a rare event that forced the Fed to inject emergency liquidity for the first time since the financial crisis.

Why It Matters

The Fed's second cut narrowed the US-Canada rate differential, reducing currency pressure on the Canadian dollar. For Canadian private markets, the alignment in policy rates simplified cross-border investment analysis — a meaningful consideration for US-listed Canadian alternative funds and cross-border PE strategies. The repo market stress, while technical in nature, highlighted that liquidity risk remained present in the financial system even during a period of apparent calm.

Signal to Watch

The BoC's October 30 rate decision would be the next domestic catalyst, falling nine days after the federal election. The combination of a new government and a rate decision in the same week would create an unusually concentrated period of policy information for Canadian markets.

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