Today the Federal Reserve cut interest rates, but here is the bottom line.
Fed Cuts Rates, But Here Is The Bottom Line
September 18 (King World News) – Peter Boockvar: So the Fed gave a one word answer for the fully expected 25 bps rate cut and that was “In light of the implications of global developments for the economic outlook as well as muted inflation pressures.” As stated here many times, because the Fed only focuses on PCE and not CPI where core CPI is at an 11 year high and 2%+ for 18 straight months, they can call inflation muted enough for them to cut rates. The actual wording on the economy was about identical to the last meeting. They are intent on doing what they can to offset the trade related economic slowdown.
Powell I believe will still refer to this as a ‘mid course adjustment’ when explaining his position as the dots don’t point to really anymore rate cuts aside from maybe one more out to at least 2022. Of the 17 surveyed, just 7 expect another cut this year. George and Rosengren dissented again and Bullard all of a sudden wants a 50 bps cut. He seems to be all over the place with his views as the last meeting he didn’t view the need for a 50 bps cut and not much has changed since and if anything, we are maybe closer to a detente with China and CPI printed higher.
With respect to its projections, which should always be taken with a big grain of salt, they actually raised their 2019 GDP forecast to 2.2% from 2.1% (call it a tweak) at the same time increasing their unemployment rate estimate to 3.7% from 3.6% and which it is currently at. Their inflation forecasts remain the same at 1.8%, just off their preferred level.
In order to get back in control of the money markets, they cut the interest paid on excess reserves by 30 bps to 1.8%. This rate is supposed to be the ceiling on the fed funds rate. They also said they’ll conduct open market operations when needed in order to keep the effective fed funds rate in between their target and hopefully below IOER. As part of this they lowered the repo rate to 1.70%, which is the intended floor on rates.
Bottom line, there is now a likelihood that as of today, this might be the last rate cut of the year as the ‘mid course adjustment’ process continues but could be done. So call this a hawkish cut. The stock market is of course disappointed with the limit on the amount of candy they’ll get but more rate cuts assumes an ever slowing economy and that’s not something to cheer for. The 10 yr yield is about 1 bp above where it was right before the news. The 2 yr yield is still down on the day but off its lows. The dollar is higher.
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***KWN has now released the powerful audio interview where Dr. Stephen Leeb says the world may see $20,000-$25,000 gold CLICK HERE OR ON THE IMAGE BELOW.
More articles to follow…
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Trey Reik – Global Financial Chaos Is Coming And You Better Own Gold CLICK HERE TO READ
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