U.S. Outlook: The curious case for panicked rate cuts

Posted By Scott Anderson In Economic Outlook | No Comments

Wait a minute. What’s the argument for cutting the Fed funds rate either 75 or 100 basis points before the end of the year, again? I have the feeling that markets blew right past that question on Wednesday, and simply equated the Federal Reserve leaning toward cutting interest rates with a massive amount of monetary stimulus. That is all it took and stocks and bonds were off to the races with no interest in looking back.

Federal Reserve building at dusk [1]

Unless the Fed thinks the economy will be in recession in the next three to six months, and I don’t think a majority of FOMC members believe that today given their recent GDP and unemployment rate forecasts, the Fed might want to reserve some bullets for when they are staring a recession right in the face.

For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook [2], delivered on June 21.

Key observations:

• The argument for aggressive Fed rate cuts this year are pretty thin, based on employment and housing data.
• Aggressive rate cuts now could trigger an asset price bubble down the road.
• The Fed should save some of its rate cuts for when a recession is an imminent threat.

Read my full report [2].

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URL to article: https://changematters.bankofthewest.com/2019/06/21/u-s-outlook-the-curious-case-for-panicked-rate-cuts/

URLs in this post:

[1] Image: https://changematters.bankofthewest.com/wp-content/uploads/2018/05/fedreserve_dusk_crop.jpg

[2] U.S. Outlook: https://changematters.bankofthewest.com/wp-content/uploads/2019/06/BankoftheWest_USOutlook_06_21_19.pdf

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