US Fed scraps patient approach, opens door to potential rate cut

US Fed scraps patient approach, opens door to potential rate cut

Mark Grant, an analyst at investment firm B Riley FBR, said: 'I did not expect the Fed to cut today but they made a significant move indicating, strongly, that at least one rate cut was coming this year, if not more'. It remains unclear when that might happen.

Since the Fed's last meeting in May, Trump has renewed his trade fight with China, threatened tariffs on Mexico and given Japan and Europe six months to reach a trade agreement with the United States or face auto tariffs. Will Trump's trade wars be resolved before they inflict real damage on the economy? A gauge of global stock markets edged near this year's peak while benchmark US Treasury yields and the dollar dropped after the Federal Reserve signalled possible interest rate cuts later this year.

The long-run federal funds rate, a barometer for the state of the U.S. economy over the long term, was indeed cut to 2.5 percent from 2.8 percent. The fact that markets have also priced in a full 25 bps rate cut for July, 50 bps rate cut by October, and 75 bps rate cut by March 2020 could mean limited scope for dollar weakness from hereon.

"I think the law is clear that I have a four-year term, and I fully intend to serve it", said Federal Reserve Chairman Jay Powell at Wednesday's semi-quarterly press conference, when Washington Post reporter Heather Long asked him what he will do if the president announces on Twitter that he intends to demote Powell from the Fed chairmanship.

"If (Powell) can pitch this as realigning nominal rates in light of the low inflation environment, it is much less of a shock", Reinhart said. New projections showed most Fed policymakers trimming roughly half a percentage point from their outlook for the appropriate level of the benchmark overnight interest rate at the end of 2019. "They're going to be making an announcement very soon". Apart from the propriety of jaw-boning what is supposed to be an independent central bank, it's bad economics. "So we'll see what happens". From there, the Federal Reserve Act only allows the President to remove a Fed governor with "cause", usually covering things like legal misconduct.

U.S. President Donald Trump hinted again this week that he'd like to wave goodbye to the Fed chair he appointed. Though the outlook around trade has been erratic, "there is no asterisk on the inflation target - '2% when (trade) policy is benign and stable.' It is not categorical".

The U.S. manufacturing sector, in particular, is weakening. Trump also said that before his meeting with Xi, negotiators for the two sides will resume talks.

"The Fed can no longer stand the pressure the yield curve is putting on them and it looks like they are finally ready to admit they overshot their target", said Chief Market Strategist Brett Ewing of First Franklin Financial Services in a statement. "We look for a rate cut in July and then for the Fed to step back for a few months and monitor trade issue resolution".

He added, "There is no threat of inflation anywhere in the economy and to stay on the virtuous Trump path of 3 to 4 percent growth with stable prices, the Fed should be pumping more dollar liquidity into the economy now".

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