Federal Reserve Cuts Rate for the First Time in a Decade - Kitco News

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In a fast market, traders reacted to the news that the Federal Reserve has lowered interest rates by ¼%. Immediately following the announcement of the ¼% rate cut gold prices sold off briskly and within the first 10 minutes of trading traded down by approximately $10. This is the first time the Federal Reserve has cut interest rates since 2008. They also ended their balance sheet reductions two months early.

As quick as the market sold off it quickly recovered temporarily and actually traded with positive gains for a brief instant. However, as traders absorbed the statement that was released just prior to the press conference held by Jerome Powell gold prices reversed again with increased downside pressure. Gold futures traded to the lowest price of the day at $1422 per ounce, this basis the October futures contract.

Chairman Powell’s press conference did not change the overall demeanor of market sentiment as he attempted thread the needle. The Fed Chairman said that Fed members focused on a “mid cycle adjustment” and focused on the fact that over this last year the monetary policy has pivoted from a series of interest rate hikes, to a neutral stance, and finally a key reversal in which they cut rates rather than raised them. When asked if there will be more rate cuts this year Powell said that the Fed also leaves the door open to future cuts saying that they will “Act as appropriate to sustain the expansion”.

Midway through the press conference Chairman Powell said that the Fed was not embarking on a long rate cutting cycle as in a recession. However, he backed off of that statement later in the press conference when he said, “Let me be clear: what I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that.”

The Dow Jones industrial average fell 478 points at its low, and as of 4:10 PM EDT is currently trading down 333.75 points and fixed at 26,864.27. Gold is also trading off of the intraday lows, but current pricing has kept October futures under pressure and are currently trading down by $16.00 at $1425.70.

Given that the Federal Reserve cut rates as anticipated by ¼% rather than a ½% sent U.S. equities as well as gold and silver strongly lower however they did hint at the fact that they might cut rates again this year to insulate and continue the U.S. economic expansion by stimulating the economy with further rate cuts this year.

“As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” he said.

While it is clear that today’s action by the Federal Reserve was not as accommodating as hoped for by traders, it must not be overlooked that this is the first time in over a decade that the Federal Reserve has reversed its stance of quantitative tightening or normalization. Chairman Powell focused on the fact that there has been a slow and methodical reversal in their monetary policy which began this year when they first stopped raising rates, to today’s action of actually cutting rates.

This key reversal in monetary policy cannot be overlooked and taken lightly. Today’s rate cut certainly confirms that the Federal Reserve has and will continue to take action to support the economic expansion in the United States. That being said it is highly likely that the Fed will cut rates at least one more time this year either in September or December.

For those who would like more information, simply use this link.

Wishing you as always, good trading,

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August 01, 2019 at 05:38AM

Opinion: The moral hazard the Federal Reserve has wrought with its interest rate cut - The Globe and Mail

By deciding to cut interest rates, the Federal Reserve has positioned itself as a shield, protecting the U.S. economy from its own government’s worst instincts. But it may have also set itself up to be President Donald Trump’s enabler.

The Fed’s quarter-percentage-point rate cut announced Wednesday – lowering the federal funds rate to a range of 2 per cent to 2.25 per cent, its first easing since the financial crisis in 2008 – is decidedly not something the U.S. economy is screaming for right now. It’s not even whispering for it. Not when the economy is already operating at full capacity (if not over capacity), with growth in the second quarter, at 2.1 per cent, high enough to squeeze that capacity a little more and unemployment near 50-year lows.

Sure, Fed chairman Jerome Powell talked in his news conference about the Fed’s worries that inflation is slightly below its target. But against that economic backdrop, it wasn’t very convincing. Inflation may be part of the Fed’s justification for this move, but it’s not the motivation.

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No, this rate cut is chiefly about playing defence against the mounting fears that Mr. Trump’s self-inflicted trade war with China could blow up in his face, taking the U.S. economy down with it. Given the damage to global growth already inflicted by the U.S.-China dispute, the Trump administration’s protectionist policies and the lack of visibility on any resolution, the Fed decided to take out some “insurance,” as many Fed watchers have described this, against the risk that the trade dispute could go spinning seriously off the rails. (Mr. Powell adopted the word himself Wednesday, acknowledging that, “there is an insurance aspect” to the rate cut.)

When you’re dealing with one of the most unpredictable, impulsive presidents in history, “better safe than sorry” seems like a reasonable way to go.

But the danger in turning pre-emptive on trade-policy risks is the message it sends to that same mercurial President. The Fed has handed Mr. Trump a licence to walk his trade-policy tightrope even more recklessly – assured, now, the Fed is there with the safety net.

“It might introduce a bigger moral hazard problem, if it emboldens the Trump administration to pursue a little more unstable trade and other policies,” Bank of Nova Scotia economist Derek Holt said in a recent interview. “He feels like he has a security blanket over him provided by the Fed."

With the precedent now set, The Trump administration, as well as the financial markets, might expect the Fed to meet any escalation of the trade war with further rate cuts.

“Are we going down a dangerous spiral of easing, emboldening trade policy, further easing? [There’s] a risk of being quite destabilizing to the outlook if we keep going down that path.”

One important consideration in interpreting the Fed cut is whether this is a small dose of preventive medicine or the start of a much deeper easing phase. The latter would suggest the Fed had bigger fish to fry than hedging the economy against rogue trade policies – that it felt a recession coming on.

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But Mr. Powell was crystal clear this isn’t what the Fed has on its mind. He described the cut as a “mid-cycle adjustment,” stressing “it’s not the beginning of a long series of rate cuts.” He left little doubt this is just a brief rewind in an otherwise upward-moving rate trend – not an all-out reversal of course.

It’s notable the Fed itself is split on how to deal with Mr. Trump’s policies. (Join the club.) Two of the 10 voting members on its rate-setting committee (Kansas City Fed president Esther George and Boston Fed president Eric Rosengren) voted against cutting. The lack of unanimity suggests there may not be enough support within the Fed to cut much deeper.

That doesn’t mean the Fed will stop at a single rate cut. But the last time the members of the committee were asked, in mid-June, their rate outlook suggested one or two quarter-point cuts would be the extent of it. And nothing the Fed said Wednesday suggested it believes the downside risks to its outlook have increased since then. Perhaps, then, one more cut – likely in the fall – should give the Fed all the insurance it needs.

Until, that is, Mr. Trump turns up the heat on China or whomever else gets in his protectionist sights – and moves the yardsticks again for the Fed. It has shown it is willing to change its stand in the face of policy risk. The danger now is how often it will be forced to do so.

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August 01, 2019 at 05:27AM

Bank of Canada unlikely to follow any Fed rate cut, experts say - BNNBloomberg.ca

The U.S. Federal Reserve is widely expected to cut its interest rate Wednesday for the first time in over a decade -- a big step, though one unlikely to pull Canada's central bank out of its holding pattern any time soon.

The Bank of Canada sent signals earlier this month that the Canadian economy is very much on its own path and, at least in the short term, has no reason to follow any move by the Fed to lower rates.

One thing appears certain -- Bank of Canada governor Stephen Poloz and his team will dissect the Fed's explanation behind the decision.

"What's going to matter most to markets, to economists, to global central banks is not what the Fed does on Wednesday -- but why the Fed moves," said Frances Donald, managing director and chief economist for Manulife Investment Management.

When Canadians look south of the border, Donald said, they should care deeply about whether the Fed is cutting rates to deal with weak inflationary pressures or because it predicts the economy is heading into a recession.

"The reason for that is because if the U.S. economy suffers a recession, so too will Canada -- with an approximate six to 12 month lag," Donald said.

"So, governor Poloz will be watching very carefully."

Earlier this month, Fed Chairman Jerome Powell signalled a U.S. rate cut was likely due to slowing global growth and trade wars.

A rate reduction by the Fed would be the first since the Great Recession of 2008. It would come at a time when the U.S. economy is still in decent shape -- unemployment numbers are as low as they've been in decades and American consumer confidence has looked strong.

The U.S. is facing external challenges related to the global economy and trade conflicts. At home, inflation has been running below target and central banks can drop interest rates as a way to lift consumer prices.

Craig Alexander, chief economist for Deloitte, said the expected rate cut should be viewed as "taking out insurance on the economic expansion" and not a sign Powell sees a larger downturn on the way.

"I don't think the economic indicators, at this point, are flashing that a recession is upon us," Alexander said.

He doesn't see any urgency for the Bank of Canada to follow the Fed's lead.

"The two central banks didn't move in lockstep with rates going up, so they don't need to move in lockstep with rates coming down," Alexander said.

"One could argue that the Fed went farther faster and now it's going reverse some of that, so there isn't the pressure on the Bank of Canada to respond."

The Bank of Canada should also be careful about "expending ammunition" that could be used later to deal with a downturn, he said.

Alexander added that a rate cut by the Fed could bring benefits to trade-dependent Canada by bolstering U.S. and foreign demand. It could also put additional upward pressure on the Canadian dollar.

Earlier this month, the Bank of Canada kept its interest rate at 1.75 per cent for a sixth-straight policy meeting. Canadian economic growth has shown signs of re-emerging after it nearly stalled in late 2018 and early 2019.

The bank, however, showed no urgency at the July meeting to make a policy change even though the Fed had already signalled its intention to lower the U.S. rate.

Carolyn Wilkins, the Bank of Canada's senior deputy governor, explained at the time that the U.S. and Canada were at different points in the economic cycle.

"The fact that Canada is picking up while the U.S. economy is slowing sounds like a divergence. In fact, it's a process of convergence," said Wilkins, noting Canada's interest rate was already lower than the Fed's.

"The United States is slowing to a more sustainable pace, while Canada is moving back up to its trend growth... By the second half of this year, growth should be similar in both economies as they converge on their respective potential level of activity."
 

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July 31, 2019 at 05:23PM

Fed cuts rates by quarter point and signals potential for more - BNNBloomberg.ca

Federal Reserve Chairman Jerome Powell said the first interest rate cut since the financial crisis was to “insure against downside risks” but didn’t signal the start of a lengthy easing cycle, drawing a sharp rebuke from President Donald Trump.

“We’re thinking of it as essentially in the nature of a mid-cycle adjustment to policy,” Powell said at a press conference Wednesday following the quarter percentage-point reduction. “It’s not the beginning of a long series of rate cuts,” he said, adding: “I didn’t say it’s just one” move.

Financial markets were whipsawed during the press conference as Powell struggled to define the rate path ahead. He attempted to explain how the cuts were mainly defensive, aimed at supporting the economy in a time of too low inflation, weakening global growth and trade tensions. At the same time, he said the U.S. grew at a “healthy pace” in the first half and the outlook is “favorable.”

The two-year Treasury yield at one stage jumped as much as 11 basis points on the day. The 10-year yield premium over the two-year rate flattened to levels unseen since March. The Bloomberg dollar index advanced to its strongest level since May.

The volatility generated complaints from some traders that Powell had wrong-footed them by mentioning a mid-cycle adjustment before later clarifying that the Fed wasn’t one-and-done in terms of further cuts.

It’s not the first time the Fed chief has stumbled with investors and drawn criticism for not living up to his commitment to use plain English to explain monetary policy. He was blamed in December for unsettling markets with hawkish comments he later walked back.

 “This was always a challenging balancing act for Powell,” said James McCann, senior global economist at Aberdeen Standard Investments. He said the chairman wanted to show the Fed was supporting the economy while pushing back against signs of panic or that officials saw “the need for a very aggressive easing cycle.”

Two Fed officials dissented against the decision to lower the target range for the benchmark rate to 2%-2.25%. The shift was predicted by most investors and economists.

“We’re looking for another 25 basis points, probably later than September, but before the new year,’’ said Roberto Perli, a partner at Cornerstone Macro LLC in Washington.

Officials also stopped shrinking the Fed’s balance sheet effective Aug. 1, ending a process that very modestly tightens monetary policy and was previously scheduled to come to a close at the end of September.

....As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place - no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!

— Donald J. Trump (@realDonaldTrump) July 31, 2019

Trump welcomed the end of the balance-sheet runoff but attacked Powell for failing to begin “a lengthy and aggressive rate-cutting cycle which would keep pace with China, the European Union and other countries.”

“As usual, Powell let us down,” Trump said in a tweet.

Dissents

While Trump wanted a larger rate cut, some Fed officials didn’t see the case for a rate cut at all.

Kansas City Fed President Esther George and Boston’s Eric Rosengren voted against the reduction, in favor of keeping rates steady. It was the first time since Powell took over as chairman in February 2018 that two policy makers dissented.

The domestic economy has performed well, growing 2.1 per cent in the second quarter. Powell emphasized that softness abroad threatens his goal of sustaining the US expansion.

Trump’s trade war with China is hurting foreign demand. Data released earlier Wednesday showed the pace of quarter-over-quarter growth in the euro area slowed by half in the latest three months to 0.2 per cent.

Rate cuts don't have the impact they used to: J. Zechner Associates

John Zechner, chairman and founder of J. Zechner Associates, explains how Central Bank easing produces the pace of economic growth we've seen in the past and how it can create the potential for bigger problems when an economic slowdown deepens.

Powell has repeatedly said the Fed’s “overarching goal” is to keep growth going. Acting now, when the central bank has less room to pare rates than in past downturns, is partly aimed at getting ahead of any potential slump.

Lackluster inflation also offered the Fed space and reason to ease. Its preferred price gauge, excluding food and energy, rose 1.6% in June from a year earlier and hasn’t met the Fed’s 2 per cent target this year.

There’s a chance lower rates will lead to asset bubbles and excessive borrowing that will haunt the economy later but Powell said he didn’t view that threat “as a reason not to take this action today.”

The rate reduction was the first since December 2008 when the Fed dropped its benchmark effectively to zero as it battled recession and financial crisis. It began raising borrowing costs in December 2015, doing so another eight times.

--With assistance from Jordan Yadoo, Reade Pickert, Vildana Hajric, Ryan Haar, Katia Dmitrieva, Ben Holland and Sarah McGregor

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August 01, 2019 at 02:25AM

Safeway to phase out plastic bags - Tbnewswatch.com

THUNDER BAY – The choice of paper or plastic is about to be a thing of the past at Safeway stores in Thunder Bay.

The grocery store’s parent company, Sobeys Inc., on Wednesday announced it plans to eliminate plastic bags at all of its 255 Sobeys locations by the end of January 2020. Other stores, including Safeway, FreshCo and Foodland, will follow suit shortly afterward.

The Stellarton, N.S.-based grocery giant intends to replace plastic bags with paper and also plans to encourage the use of reusable bags.

“So many of our customers and our employees have told us loud and clear -- they want us to use less plastic -- and we agree with them,” said Michael Medline, President and CEO, Empire, in a release issued on Sobeys’ corporate website.

“This is a first step, and we plan to make meaningful progress every year to take plastic out of our stores and our products. We decided to act now instead of taking years to study and only make long-term commitments. We’re taking action now, making a tangible difference today and into the future. This is a significant first step, but it’s only a first step. We need to go further, and we will.” 

Nationwide, the move is expected to take 225 million plastic bags out of circulation at Sobeys stores alone.

The company also plans to reduce plastic packaging, where possible. 

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August 01, 2019 at 03:39AM

CRTC publishes internet code of conduct aimed at ISPs - CBC News

Canada's GDP grows 0.2% in May, as manufacturing rebounds - BNNBloomberg.ca

The Canadian economy expanded for a third-straight month in May on increases in manufacturing and construction, reinforcing the view the central bank can remain on the sidelines for now.

Gross domestic product rose 0.2 per cent, after a 0.3 per cent gain in April, Statistics Canada said Wednesday from Ottawa. The figure topped the 0.1 per cent gain expected in a Bloomberg survey of economists.

The result will relieve pressure on the Bank of Canada to follow other central banks in easing policy. The Federal Reserve is widely expected to cut rates for the first time in a decade later on Wednesday.

Canada’s currency appreciated after the report, reversing an earlier loss and trading 0.2 per cent higher at $1.3130 against its U.S. counterpart at 8:32 a.m. in Toronto.

Key Insights

• The better-than-expected result will support estimates for second-quarter growth closer to 3 per cent, versus the 2.3 per cent predicted by the Bank of Canada at its latest rate decision this month.
• Wednesday’s report shows Canada’s recovery continues apace, after growth virtually stalled at the end of last year. May’s gain caps the strongest three-month increase since the middle of 2017.
• After oil production led the expansion in March and April, the story in May was more about manufacturing, which climbed 1.2 per cent, and construction, up 0.9 per cent.

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• Real estate showed strong gains, supporting the narrative of a recovering housing market, with the agents and brokers subcategory up 4.8 per cent in May, the fourth gain in five months.
• The gains were relatively broad-based, as 13 out of 20 sectors recorded higher output.
• In a separate report, Statistics Canada said industrial product prices fell 1.4 per cent in June, versus an estimate in a Bloomberg survey for a 0.2 per cent drop. Prices for raw materials fell 5.9 per cent, compared with a forecast of a three decline.

--With assistance from Erik Hertzberg

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July 31, 2019 at 07:59PM