This year will be remembered not so much for greta thunberg speech but constant attempts from President Donald Trump to create enemies. Everything started with a notorious Hillary Clinton but ended up in discussions with the fed regarding monetary policy, or to be more precise, its dovishness or hawkishness.
In this sense, Donald trump and Powell have completely different goals. On one side, the global economy, including North American, is still far from a recession. On the other side, US elections are quickly approaching. Nevertheless, the fed is not giving in, applying expansionary policy only when it’s necessary and in smaller proportions. The problem is Trump’s twitter that almost immediately discharges any positive outcome...
In this context, Jerome Powell team has three options with three different consequences:
1. Decrease interest rates more than markets anticipated, thus cooperating with trump. It may have a positive effect on sp500 but talking into consideration that economy is still doing well, when actual crisis will come, the fed won’t have instrument to defeat it.
2. Leave interest rates untouched and trigger Trump's anger. We might probably see some shortfall.
3. Finally, the Fed can decrease interest rates by 25 bp , once again triggering Trump. He may twit something like: fed useless, Europe already has interest rates and we don’t act... then some negative news from China us trade agreement may appear and all the positive effects will be discounted
September 18, 2019 1.75%–2.00% 2.75% 7-3 Official statement. Results: SPX down, EURUSD up
July 31, 2019 2.00%–2.25% 2.75% 8-2 President Donald Trump demanded a cut though a bigger one. Results: SPX down, EURUSD up
December 19, 2018 2.25%–2.50% 3.00% 10-0 Results: SPX down, EURUSD up
In this sense, Donald trump and Powell have completely different goals. On one side, the global economy, including North American, is still far from a recession. On the other side, US elections are quickly approaching. Nevertheless, the fed is not giving in, applying expansionary policy only when it’s necessary and in smaller proportions. The problem is Trump’s twitter that almost immediately discharges any positive outcome...
In this context, Jerome Powell team has three options with three different consequences:
1. Decrease interest rates more than markets anticipated, thus cooperating with trump. It may have a positive effect on sp500 but talking into consideration that economy is still doing well, when actual crisis will come, the fed won’t have instrument to defeat it.
2. Leave interest rates untouched and trigger Trump's anger. We might probably see some shortfall.
3. Finally, the Fed can decrease interest rates by 25 bp , once again triggering Trump. He may twit something like: fed useless, Europe already has interest rates and we don’t act... then some negative news from China us trade agreement may appear and all the positive effects will be discounted
September 18, 2019 1.75%–2.00% 2.75% 7-3 Official statement. Results: SPX down, EURUSD up
July 31, 2019 2.00%–2.25% 2.75% 8-2 President Donald Trump demanded a cut though a bigger one. Results: SPX down, EURUSD up
December 19, 2018 2.25%–2.50% 3.00% 10-0 Results: SPX down, EURUSD up
Views and opinions for informational purposes only. Remember, past performance is no guarantee of future results.