President Donald Trump wants the Federal Reserve to help head off a feared economic slowdown, but it's not clear the central bank has enough firepower left to do so.
"They don't need to explain their rate cuts to voters or to the Trump economics team, but they will have to explain themselves to the history books. The Fed's interest rate cut looks more out of line than ever given the strength of the economy," he added. "Recession? What recession? That's what we want to know."and the market anticipates at least two more before the end of the year.
The Fed in 2019 has sought to reposition itself from an intention to continue raising rates this year to holding a "patient" stance before changing policy to one that now is actively assuring markets thatHowever, its 25 basis point rate cut on July 31 has been treated with relative ambivalence — whereas such a move normally would cause the yield curve to steepen, the gap actually has contracted to the point of the inversion that so startled markets Wednesday.
Federal Reserve Chairman Jerome Powell testifies during a House Financial Services Committee hearing on "Monetary Policy and the State of the Economy" in Washington, July 10, 2019.Traders are not anticipating that kind of move, though the chances of a 50 basis point reduction in September moved up to 33% Thursday, according to the CME's tracker of market probability. The market is projecting the funds rate to keep falling until it hits around 1.
"The Fed could overestimate the strength of the economy and keep policy too 'tight,'" he added. "This
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