Headwinds brewing?
Trade concerns and an uncertain economic outlook make a Fed July interest rate cut highly probable after Fed chair, Jerome Powell addressed his concerns to U.S. congress.
Comments made by the Fed suggests that growth in the second quarter appears to have moderated, business investment appears to have slowed, weak inflation may become more persistent and trade tensions weighing on economic growth still linger.
Market expects rate cut
So, markets rate cut ‘expectations’ appear to have been confirmed by the Fed. And yet, again, it’s a case of bad news/good news! (Bad news in that the U.S. economic performance is slowing).
Strange really when the likelihood of an economic slowdown becomes good news paving the way for an interest rate adjustment favourable to the markets? The mere talk of an interest rate cut lifted markets in intraday trading today – 10th July 2019 at 15:00 (BST). The S&P 500 moved above 3000 and the Dow closed in on 27000. Markets love the idea of a rate cut.
Fixed?
Generally, everyone should benefit from an interest rate cut, especially businesses and borrowers, so that has to be a good thing, right? Markets love that concept. But it does raise the concern, to me at least anyway, that the U.S. economy still isn’t entirely fixed! And for that matter neither is the UK or EU economies. Indeed, isn’t that partly why we are facing a global economic slowdown again?
We have had cheap money rammed into the system for over 10 years now and are we better off for it? How much debt is out there? Global economies are drugged up on cheap money! Ans it won’t end good!
Easy money back in vogue
Easy money is back in vogue, again! Central banks have so much fear left over from the financial crisis that they have no choice but to act. Maybe this news will at least avert the impending fear of doom and gloom of a looming global economic slowdown.
Will global economies ever get fully fixed after the financial crisis? Cheap money still appears to be here for some time to come yet. Markets like it regardless.
Next week the U.S. enters ‘reporting season’. A bad round of company results may provide much more of reason to lower interest rates.