The Fed cut interest rates, as expected Wednesday, but comments from Fed Chairman Powell were seen as confusing and market pros say Fed policy has now become muddled.
, which most reflects Fed policy, spiking as high as 1.96%, off an early low of 1.79% prior to the Fed statement.
Two Fed presidents, Boston Fed President Eric Rosengren and Kansas City Fed President Esther George objected on the basis that a cut was not warranted, and that also confused markets about the course of further Fed policy. "Today's Fed events may have given risk markets a little indigestion, but they also bought the Fed a little more flexibility going into the next FOMC meeting. We still look for one more easing in September, and continue to believe that, unlike today's meeting, the call on September depends on all of the data.
"It's confusing...The market was pretty bulled up and priced in quite a bit of rate cutting over the next year and a half, and now that has to come out," said Wells Fargo director, rates strategy Michael Schumacher. "It was pretty evident when you think about this particular meeting was going to be about Powell," said Schumacher."If the economy stays the same and prices go down and anything on his list continues to be a risk I think they will cut too," said Briggs. "I tend to think the global outlook is not that great. Germany is going to be a mess for awhile. China has issues. The British economy is heading into Brexit and sterling is falling.
So by not promising more easing, the Fed could now create shaky market conditions and could find itself taking an easier stance to appease markets, creating a negative feedback loop.
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