Fed sends right signal with rate cut

Marsico Capital Management has welcomed the Federal Reserve’s decision to cut the Federal Funds rate by 50 basis points, judging, that the decision sends the right signal. The Fed stated that its action was ‘intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.’ In Marsico’s view, a more modest reduction of 25 basis points or staggered cuts would have resulted in a certain amount of pain for US consumers for a longer period. It would also have put holdings in consumer stocks and financials within the Gartmore US Opportunities Fund under greater scrutiny.

Marsico had also been keeping a weather eye on the Fed’s phraseology with regard to its inflation concerns. In its statement, the Fed commented that ‘readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.’ In Marsico's opinion, this language differs from the recent past statements and conveys the message that the Fed is aware of economic signs that inflation risks have subsided somewhat. Marsico is sub adviser to both the Gartmore US Opportunities and US Growth Funds.