Wednesday, 26 June, 2019

Trump doubles down on Fed criticism, warns rates are too high

Embedded Image Chinese Yuan per US
Ginger Lawrence | 12 June, 2019, 19:27

Friday's weaker-than-expected U.S.jobs report added fuel to the idea that the economy is struggling enough to warrant fresh stimulus from the Fed. Investors see a 75% probability of a quarter-point cut in July. "We don't think the data makes enough of a case for rate cuts at this stage", says Josh Nye, an economist at RBC Capital Markets. Earlier, China's stocks rose on Beijing easing financing rules to boost local government spending on public works and expectations of lower central bank rates globally.

The president also tweeted that the US has "VERY LOW INFLATION", calling it a "beautiful thing!" -China trade conflict has weighed heavily on the yuan this year. The CME FedWatch Tool now shows a 17.5 % chance that the Fed will ease rates at the June 19th meeting.

United States markets witnessed good growth which accelerated higher due to comments by Jerome Powell, Chairman of Federal Reserve who stated that market and trade developments were being closely monitored by Central Bank and they will act appropriately to sustain expansion.

USA stock prices rallied for a fourth straight day Friday on increasing bets that the central bank will reduce rates. Rupkey has also affirmed that economic data does not show any signs of recession which would prompt Federal Bank to reduce rates.

The report from the Labor Department on Wednesday, however, showed some pockets of inflation, with rents and health care costs rising solidly, which could buy the US central bank some time before easing monetary policy. However, pricing in the overnight-index-swap market now implies as many as three rate cuts could be likely before the end of 2019.

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Last week Mr Powell appeared to hint that a rate cut could be happening, citing a response needed for the global trade war. "But we're not in a tranquil environment" even though Trump dropped his threatened tariffs on imports from Mexico. All that means that traders are still betting on easing sooner rather than later, with some speculating that the first move could be a 50-basis-point cut.

"The reason they'd come in with 50 basis points is that the emphasis would be on surprising the markets, " senior USA economist Millar said. "They haven't listened to me".

Policymakers at the USA central bank voted to hike the benchmark federal funds rate four times in 2018, with the current range between 2.25 percent and 2.5 percent.

Arguing against a big reduction: It could spook investors into thinking that the Fed was panicking, and that the economy is in a lot worse shape than it actually is.

"Today's inflation report keeps the Fed's options open".