A Fed Rate Cut is Imminent, but is it Needed?
Fed Chairman Jerome Powell signaled the central bank was ready to cut rates in July 2019.
However, for many, a rate cut really made no sense.
Still, even with cooling trade tensions and the addition of 224,000 jobs in June 2019, neither was enough to change Jerome Powell’s opinion the U.S. economic outlook has changed.
“Crosscurrents have reemerged,” Powell said, as quoted by CNBC. “Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”
With regards to acting with 3.7% unemployment, Powell also noted, “We don’t have any basis, or any evidence, for calling this a hot labor market. To call something hot, you need to see some heat, and while we hear lots of reports of companies having a hard time finding qualified labor, nonetheless, we don’t really see wages responding.”
You’d think that would at least keep the Fed on the sidelines for another few months.
Even more reports told us a rate cut wasn’t necessary.
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The Commerce Department reported that retail sales were up 0.4% between May and June 2019. That was much better than the 0.1% economists had expected. It may have been even stronger had it not been for the 2.8% decline in gas station sales on the heels of lower fuel costs.
Consumer spending looks to have grown as much as 4.3% in the second quarter, according to The Wall Street Journal.
At the same time, the Federal Reserve just reported that manufacturing output increased 0.4% between May and June 2019, as well. That cools concerns that factories are cutting back. Toss in the strong jobs report, cooling trade war tensions, and a stock market at record highs, there were little – if any reason – for a rate cut in July 2019.
Still, the central bank wants to trim rates because of two factors.
One, the Fed is fearful that trade tensions and global uncertainty could derail the economy. And two, inflation is reportedly running below the central bank’s 2% target. So, while there are good arguments against a rate cut, it’s a wait-and-see at this point.
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