Ten years after, the FED seems to be willing to cut interest rates again. But, with the global economy still performing well, expectations for bold interest rate cuts may fall short of reality. Article originally published at Master Investor Magazine August 2019 Issue 53 p. 40-45.
During its latest meeting (31 July), the FOMC decided to cut interest rates by 25 bps and eventually ignite a series of cuts to avoid the current inversion of the yield curve and give the U.S. economy some cushion. The odds are now pointing towards three cuts this year, accumulating to 75 bps. But, with the unemployment rate still at levels last seen in 1969, it’s hard to believe expectations are derived from economic and monetary reasons. With the U.S. election nearing, Donald Trump is pressing the FED to ease its policy. But will the FED follow Trump’s wishes?
Policymakers seem worried about President Trump’s trade policy and have expressed a willingness to cut interest rates, to cushion the effects of the trade war with China.
We shouldn’t forget that, unlike the US economy, the European economy has been struggling. If there is a central bank in need of bolder action, it is the ECB, not the FED.
If the expectations prove too optimistic regarding rate cuts in the US, or if Europe engages in a more dovish monetary stance, the dollar may gain value against the euro.
You can read the full article at Master Investor Magazine August 2019 Issue 53 p. 40-45.