A necessary element of surprise

The Federal Reserve caught the markets off their guard when it slashed the Federal Funds rate by half a percentage point on April 18.

It was the fourth reduction this year and the second time since January 3 that the US central bank has cut the key overnight rate between meetings of its Federal Open Market Committee. “The April move clearly was a shocker,” says David Greenlaw, an economist at Morgan Stanley. “Still, it was less surprising than the cut on January 3 – a move that signalled something had changed, from the standpoint of Fed timing.”