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I don’t think we’re going to see either a rate cut or a china deal. Even if we do hear talks of either, I think the market will move lower. Too much talk and too little follow-through leaves market participants feeling untrusting of the talking heads.
First off, I know absolutely nothing about this, which is not going to stop me from talking about it, but I think I should give fair warning.
Certainly the administration would like more cuts, and the president has been talking up rate cuts lately. Also, it looks like markets would like them now too, unless the bears are going to come back in, of course.
My view is that it would be extremely surprising if the Fed made another cut any time soon. Reasons? (And remember the warning I just gave ):
- The Fed tends to be really cautious and knows the impact of its actions can be very broad, affecting national economies, here and elsewhere, and sometimes the world economy.
- The Fed has a few political types on its board, but mainly has real economists, who generally want to act out of real economic reasons (sure, they obviously know about politics too.) Call me naive, but I think they care more about doing their job than about doing what the administration wants. The president can try to jawbone them down, and may succeed (it has happened in the past), but it doesn't always.
- As far as I can tell (refer back to the warning I gave), the recent easing was a step taken as a possible preventative against a slowdown. I think they probably will want to wait to see what happens.
Essentially, I think the Fed's motivations and the president's are not necessarily the same. All presidents want the Fed to help them out. I think (and hope) that this Fed will stay independent.
(I just realized that most of what I wrote is more about the Fed and the administration, not about the Fed and the markets. The markets are much more a matter of the Fed's concern, but here I also think they will be slow to act, out of institutional caution. if nothing else.)
As to the actual merits, whether the Fed should cut more or not, I don't have any idea about that either. I just think the Fed will try not to do too much, too soon. Whether this kind of caution is a good idea or not is way outside my area of expertise.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Interesting view from both, thank you. My guess with the cut is that we, USA, owe so much money that we need to keep rates down. Paying very high rates on our bonds can break our budget. So, how can the Fed justify cutting rates with lowest unemployment in many years and strong market. By creating a China "drama" and ask big drop days, such as yesterday.
There are hints for both surprise rate cut and tariff deal, I think. Soon.