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The FED has become a market hostage? The market wants to cut rates
The market is expected from Federal Reserve of the United States specific actions, as well as US President Donald Trump. Market pressures and political pressure can make the Federal Reserve deliver what is expected of it in the long term.
"Feet down" (!)
The interest rate cut this week is likely to be the first step in the new monetary policy easing cycle, which could bring US debt yields to new record low levels. Even if the Fed decides to cut interest rates this Wednesday, the market will want even more.
There are many indications that the US central bank is no longer dependent on incoming data, and is more focused on anticipating potential threats in the form of a greater slowdown or recession and not letting them in advance. This is crucial and confirms what investors have valued since the end of last year. On the debt securities market, we still see an inverted yield curve, which was often a market determinant of problems in the economy.
The Fed may try to meet the anticipated slowdown and ensure that any potential recession will be mild, as it did in 2000-2001, as opposed to the economic downturn of 2008. The problem, however, is that the current interest rate at 2,25% -2,5% does not leave much room for maneuver as in previous mitigation cycles. The Fed rate in 2000 was at 6,5% in 2000, and in 2007 at 5,25%.
This time the Fed will probably lower interest rates in a slow but systematic way with 25 basis points, which will start before the slowdown, which will only accelerate. This may be the Fed's main tool to fight economic cooling, and only extraordinary events could lead to at least the resumption of QE.
A series of reductions in the coming months?
According to investors, on the interest rate market in 2020, we can see the range for the federal funds rate of 1,25-1,5 percent. This means that over a year or so, investors expect four interest rate cuts in the United States, and the Fed can implement them so as not to disappoint the market or politicians.
