- Trump's Delay of ICE Deportations
- Elizabeth Warren's large crowds
- Federal Reserve's Contemplated Rate Cut
- Israel Barring Reps. Omar and Tlaib from Entry
- Harris's Busing Challenge to Biden
- 2021 COVID Stimulus Package - Size and Inflation Risks
- Trump's Comments on Baltimore
- The Shrinking Middle Class
- Booing Andrew Luck
The presence of political pressures pushing for economic stimulus does not negate the very real factors necessitating a rate cut: economic turbulence (domestic and global) and trade wars.
Notably, as trade, manufacturing, and business investment data have weakened, job growth has slowed. The timing could not be worse, as those that were largely forgotten by the 11 year economic recovery are only just now starting to gain traction. The ongoing trade war, which shows no sign of slowing, will only further handicap job growth. Meanwhile, central banks around the world are cutting their own rates, in the face of greater global stress.
While the above risks do not necessarily indicate a coming recession, cutting rates now will, in Chairman Powell's words, provide a needed "insurance" policy. As Alan Greenspan - who cut rates in July 1995 when the S&P 500 was at a record high and up 20% for the year - recently said, it pays to proactively fend off potential negative economic effects. Moreover, inflation continues to be too low, running 40-50 basis point below the 2% inflation target. This gap not only indicates ample room for movement, but could threaten the economic expansion if it is allowed to persist.
Even assuming that the Fed is actually acting independently and not in direct response to Trump's demands for economic stimulus as a means of shielding the economy from his own policy choices, no one can deny that it at least appears that the President is getting his way. Indeed, there are two hard truths that we must accept from this recent episode: (1) no president has previously so publicly lobbied for a rate cut; and (2) it is highly unusual for the Fed to cut rates during strong expansions. The January 2001 rate cuts preceded the 2002 crash (with the NASDAQ losing 80% and the S&P losing 50%). The rate-cut in the summer of 2007 preceded the crash that cost the S&P 57%.
While it might provide a minor (and likely brief) economic boost, long-term a rate cut will erode credibility in the Fed and undermine one of the U.S.'s most powerful institutions.
Sep-15 → Sep-22
2403 total mentions:
Sep-15 → Sep-22
1604 total mentions:
Oct-07 → Oct-14
1002 total mentions:
Joe Smith: "Hello, world."