Friday, 21 February, 2020

Fed's Mester weighing argument for U.S. rate cut

Graphic Crazy inverted yield curve vexes Fed with no clear resolution Fed's Mester weighing argument for U.S. rate cut
Ginger Lawrence | 18 August, 2019, 16:55

He also pointed to warning signs from the bond market - where a key segment of the yield curve inverted on Wednesday for the first time since the financial crisis - as a red flag that Fed rates were still too high. "I think the US economy has enough strength to avoid that, but the odds have clearly risen, and they're higher than I'm frankly comfortable with".

Bullard, who has supported a rate cut and said he puts weight on the signals given by the bond market, said he nevertheless was not ready to commit to reducing rates at the Fed's upcoming September 17-18 meeting.

Has an eye on lower inflation expectations.

It's rare for short-term interest rates to go higher than long-term rates, because lenders generally require a higher interest rate to lend for longer periods of time, due to a bigger inflation risk or the increased possibility of defaulting. "But we need to continue to watch the data as it comes in over the next month before our next meeting".

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With economies slowing overseas "you have this flight to safety going on", that is pushing down US rates even though USA economic growth is "reasonable", Bullard said in comments on Fox Business Network that seemed to discount the degree to which recent market volatility may figure into the Fed's next decision on interest rates.

In front of a gaggle of reporters, Trump said the move to delay the tariffs was "for the Christmas season, just in case some of the tariffs would have an impact on US consumers". -China trade war and what seems to be a global slowdown could weigh on the economy.

The trade war is causing a natural flight to safety driving USA rates lower. Bullard declined to say whether he believed a deeper cut was necessary. U.S. President Donald Trump was quick to slam the Federal Reserve and call the notion of an inverted yield curve "crazy". Rates are now set between 2 percent and 2.25 percent.