This image was taken from Charles Schwab.1
In late 2018, the Fed raised the federal funds rate 25 basis points to a range of 2.25-2.5%.2 This was the fourth raise of 2018. Simultaneously, the Trump administration continued to lead in a tit-for-tat trade war with China, with both sides using tariffs as their core ammo thus far. These two factors hurt business sentiment and financial expectations, because non-fixed borrowing costs would likely increase from the federal funds rate increase, tariff affected imports would be more expensive, and demand would be more uncertain (especially internationally).
Since the fourth quarter of 2018, the Federal Reserve has reacted to some deteriorating economic gauges (and potentially some increasing calls for action from Trump) by cutting the target rate range of 2.25-2.5% twice, once in August and once in September, to a range of 1.75-2%.2 Currently markets are giving “about a 87% chance of a quarter-point rate reduction at the Oct.29-30 meeting.” 3 This would mark the third consecutive rate cut. The expectation around this reference rate is that the lower borrowing costs enable investment and expansion projects, in turn boosting the economy and elongating the bull market’s life.