Federal Reserve: Prevention versus cure
A ceasefire has been called in the US-China trade war, but we doubt the truce will hold for long given the two sides remain a long way apart on key issues such as technological transfers, intellectual property rights and the trade dispute resolution mechanism.
A new round of tariff hikes will contribute to more pronounced economic weakness by disrupting supply chains, putting up costs and hurting profit margins. Such an environment would be negative for equity markets and make US businesses more reluctant to invest and hire new workers.
Given the expectations of renewed trade tensions, we look for an early precautionary 25bp rate cut in July, followed up with another 25bp move in September
At the June FOMC meeting, the central bank talked of increased “uncertainties” about the economic outlook which they will “closely monitor”. Federal Reserve Chair Jerome Powell subsequently repeated his comment “an ounce of prevention is worth more than a pound of cure”. Given the expectations of renewed trade tensions we, therefore, look for an early, precautionary 25bp rate cut in July, followed by another 25bp move in September.
A 50bp July rate cut had been seen as a possibility at one point, but given St Louis Fed President James Bullard, who was the only Fed officials to have voted for a June rate cut, suggested such aggressive action “would be overdone”, this looks unlikely. Nonetheless, the market is pricing in three rate cuts in total this year with a further 25bp cut in early 2020.
We don’t expect such aggressive action given our belief that President Trump wants to win re-election and will, therefore, be prepared to sign a trade deal, probably in 4Q, that doesn’t necessarily meet all of his initial demands. A rising equity market and healthy economy gives him the best chance to succeed.
from Business - Latest - Google News https://ift.tt/2xztgEX
via IFTTT
July 08, 2019 at 05:18PM
Tidak ada komentar:
Posting Komentar