Did the Fed cut rates too soon?


Did the Fed cut rates too soon?

Positive US payroll numbers, strong corporate earnings, and modest growth isn’t normally used as a base case to cut interest rates but this week, the Fed cut interest rates by a quarter percent. The Fed cited muted inflation pressures and implications of global developments as the reasons for its first rate cut in over a decade. Chairman Jerome Powell also left the door slightly ajar for further rate cuts in the near term. The markets which had priced in a rate cut where looking for a more dovish tone from Powell and subsequently reacted negatively when none was forthcoming.

Nevertheless, the Fed could be forced to cut rates further if President Trump’s antics continue. Like a kid in a giant candy store, he is unable to maintain a temporary truce with China. And while we know most G20 agreements are not worth the non-existent paper it is written on, the continued struggle will adversely affect global growth. China has yet to respond to the latest import threats but expect this to dominate headlines for the next few weeks.

Read what the team at FE consider to be significant over the current week.