Despite positive tone from Fed, Wall Street still 'frozen' ahead of G-20
S E E D E D C O N T E N T
The Federal Reserve’s highly anticipated two-day meeting ended as most market observers expected, with no cut to the benchmark Federal Funds rate, but with language that indicated the Federal Open Market Committee was more open to cutting interest rates.
“It confirms market expectations that they’re no longer worried about a tight labor market increasing inflationary pressure,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management. “A neutral stance seems to be appropriate,” he said.
In characterizing its stance, the Fed statement dropped the word “patient,” as many had predicted. “Patience is no longer a virtue of the Fed,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “It appears that market participants have nudged the Fed closer to the idea of ‘insurance’ rate cuts,” he said.
Citing “cross-currents” like trade tensions and slowing global growth, Federal Reserve Chairman Jerome Powell said in his afternoon press conference that many Committee members see a stronger case for future rate cuts. The “dot plot” indicating the projections of Fed officials bore this out, but Powell said that although the dots “provide useful information for people,” he stressed that they shouldn’t be read as a forecast.
“We now have eight dots that are saying there could be a cut by the end of the year,” said LendingTree chief economist Tendayi Kapfidze, adding that the spread of the dots was a telling indication that officials were divided about how to read conflicting economic signals and how to respond from a policymaking standpoint. “That movement in those eight dots suggests that there’s more of a debate around whether there should be a rate cut or not,” he said.
The Fed statement also described the pace of economic expansion as “moderate,” versus the use of the word “solid” in May. “It’s a subtle difference, but it is a difference,” said Dan North, chief economist at Euler Hermes North America.
Although the outlook was generally positive, the Fed said that uncertainties have increased. It said it would step in and “act as appropriate to sustain the expansion,” using stronger language than in the past.
Powell said that uncertainties have “clearly risen," pointing to weaker business sentiment and corporate investment, although he noted “solid” consumer spending and a still-healthy rate of job creation. But he added that the committee wanted to respond to sustained trends and not react just to data points or changes in sentiment, which can be volatile.
Chair Powell also noted that inflation was growing at a slower rate than expected, and that weak global growth might continue to hold inflation down both in the U.S. and worldwide, suggesting that a 2 percent target inflation rate might be a new normal.
“They’re recognizing that growth is slowing, potentially from the headwinds we’re seeing in trade. I think they’re seeing some of that. They also evidenced that business investment has softened,” Ripley said.
This could be a consequence of President Donald Trump's tendency to wield trade sanctions as a weapon in economic, geopolitical and diplomatic conflicts, he said. “Business managers are unable to make decisions in this environment.”
The stock market had a muted response to the Fed announcement, with some analysts saying Wall Street could be suffering from the same paralysis as corporate America.
“Investors are frozen like a deer in the headlights," said Mitchell Goldberg, president of Client First Strategy. “There are so many cross-currents here, between the desires of President Trump, the trade tariffs, the G-20 meeting coming up — no one wants to do anything."
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So who is right, the Fed, or Wall St?
There are differing interpretations of the Fed's inaction.
First, nobody likes to admit they're wrong. My guys - Krugman and DeLong - have been saying all along that the Fed was moving too fast to raise rates. Now it appears that this is true - that the Fed made a mistake. Nobody like to admit to mistakes.
Second... perhaps (hopefully), Powell kinda explained a few days ago. Trump has been calling for low rates, and Powell was pretty public about the Fed's duty to resist political pressure. So maybe the Fed is not lowering rates, precisely because the President - who should not be getting involved - is calling for them.
... and of course... the fact is that we don't know how bad the shipwreck will be. Who knows? Perhaps Trump will declare victory over China tomorrow, cancel all the tariffs, and there will be no shipwreck at all...
... or there will be war in Iran, and everything will go to Hell in a hand-basket.
I don't envy Powell...
From what I read the feds basically froze the rates in place for now, with the option of lowering them.
trump keeps yapping about his dislike for Powell yet Powell said he is going to remain in the position for his full term.
IMO they will do whatever they can to keep everything on an even keel as not to rock the boat before the elections.
The tax cuts showed its boom last year so this year they have nothing to give any boost.
Could we please STOP the "boom" nonsense?
Thanks to very steady Fed policy under Bernanke, Yellen and Powell, the economy has been on exactly the same track during the last two Presidencies .
The tax cuts did bump up activity. Even the second and third quarter GDP of 2018.
Corporations had their buyback spree and took advantage, then things fell back down.
Now they have nothing left in their bag of tricks.
It depends on how you define the economy. IMNAAHO, the DOW is a very poor measure of the economy, and it is the only indicator that the tax cut affected. As you say, it triggeed primarily stock buy-backs that brought great wealth to the already-rich, but nothing to the productive economy.
I was going by GDP. Stocks have been basically flat for some time. The cuts did jump up GDP for about two quarters as there was several gems in there for corps. Like rebates for equipment purchase and the like.
I think parts of it were designed to give more of an illusion of growth as IMO it was mostly artificial, as in a giveaway that was taken advantage of, which created short term activity.
The GDP graph is the same as the others. The Trump economy is a smooth continuation of the Obama economy.
I hate the tax cuts and think it is destructive for the long haul yet it did give a bump for about two quarters.
Perhaps. I'm not sure how to isolate any particular cause/effet.
Wall Street isn't frozen. It's closing in on all time highs for the S&P with Dow futures up 234 and S&P up 28 as of 8am est.
Dow Jones futures jumped early Thursday, along with S&P 500 futures and Nasdaq futures, with the S&P 500 signaling a move right at all-time highs. After surging Tuesday on China trade hopes, the current stock market rally advanced Wednesday as policymakers signaled Fed rate cuts are coming.