U.S. Outlook: A Fed rate cut is still needed
Despite positive readings on some major U.S. economic indicators in June and July, red flags surrounding future growth continue to appear. For example, this week the Conference Board’s Leading Economic Index clearly pointed to softer U.S. economic activity ahead. In June, this index dropped the most in one month since January 2016, which was the last time the U.S. economy was struggling to grow and business investment was in a technical recession. Moreover, the outlook on global manufacturing and economic growth continues to darken.
Since monetary policy works with a lag of about six months to a year in the best of times, the Federal Reserve needs to look beyond the next month or two and try to divine where the economy could be a year from now without any additional monetary support.
We think the choice is clear, now is the time for the FOMC to cut rates, if there is any chance to stave off a sharp slowdown or outright recession next year.
For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on July 19.Key observations:
* Some U.S. economic data reports in June and July, such as regional manufacturing surveys and employment readings, have painted a picture of a stable expansion.
* However, there are red flags. The Conference Board’s Leading Economic Index pointed to softer U.S. economic activity ahead.
* Outside of the U.S., signs of slower growth continue.
* The FOMC should anticipate a slowdown on the horizon by cutting rates in July.
Read my full report.