Powell, FOMC Continue to Play Down Future Rate Cuts
Powell, FOMC Continue to Play Down Future Rate Cuts
To be a “fly on the wall” is such a cliché, and yet for an investor it was so to be desired for the meeting that took place last week between President Donald Trump and Federal Reserve Chairman Jerome Powell. I, and probably every investor in the world, really would have liked to have been a fly on the wall in the White House for that.
The President has taken everyone opportunity to criticize (batter) the Fed chairman for perceived laxity in rate cutting in the face of a global growth slowdown, using some not very kind adjectives in the process. I mean was that meeting “Godzilla vs Mothra” or was it polite? Given the chairman’s generally unflappable demeanor in press conferences, perhaps the President was Godzilla but Powell was probably more like Fred Rogers.
I don’t pretend to know how you climb down from calling someone an enemy of the state, as Trump did Powell, but then the president said in a statement on Twitter that the Monday meeting was “very good and cordial.” That was probably the nicest thing Trump has said about Powell since the latter took up the reins at the Fed. OK everything’s good now—until the next time Powell doesn’t cut rates and the rest of the world does.
The Fed said Powell didn’t deter from the central bank’s view that the Fed’s interest-rate cuts this year would buoy the U.S. economy against lingering risks, including decelerating global growth and any fallout from uncertainty that has been amplified by the U.S.-China trade war. Policy is data dependent.
The meeting minutes of the latest Federal Open Market Committee meeting came out and were duly pored over, like tea leaves. After October’s rate cut, the third this year, FOMC members were worried that manufacturing, trade and business investment weakness might hurt the economy through hiring and consumer spending reductions, the minutes said. One interesting point was that last month’s rate cut wasn’t as supported as earlier moves.
Upshot: Don’t expect any more cuts for the time being, though that remark is more due to the CME Fed futures market than anything the FOMC might say.
Separately, the New York Fed continues to add liquidity to the money markets, with tens of billions in temporary liquidity to the financial system on Wednesday, through the use of repos.
Bottom Line: The Fed’s on hold until further notice. The economy is in a “good place.”
The CME Fed futures market, which has a good predictive track record about rates, showed that investors have put a zero probability of another rate cut next month, at the Fed’s last meeting of the year. What’s new is that a rate hike probability is now 5%, up from zero. This bears watching.
The U.S. Treasury 10-yr note yield was around 1.77% down from 1.83% Nov. 15 and below 1.5% in September.
Upcoming: 12/10-11 - FOMC meeting. Don’t expect any changes.
