The Federal Reserve message is clear:
1- Macro data remain robust and expected inflation is low
2-Risks on the economic prospects are on the upside
3 – The Fed will adjust its rate if necessary but nothing is on the agenda
4 – The dots’ graph doesn’t give information as it shows one drop in 2020 and one hike in 2021
5 – Powell introductory statement indicates a bias on the downside for the Fed’s rate in the future.
6 – Long term rates dropped on this perception even if nothing has been said on the agenda. The 10y is now below 2% and the 30y below the fed funds rate for the first time in this cycle
7 – In the past, when all rates are below the Fed’s rate it’s a signal of recession. The drop in the Fed’s rate will come but will not be sufficient to avoid a recession.
8 – The reason is that low long term interest rates reflect low expectations on the future. They can’t reverse spontaneously. Economic phenomena are persistent
In its monetary policy statement, the Fed says there is no reason to lower interest rates rapidly. Activity data are still robust and inflation remains moderate. Therefore, as long as there is no sudden inflection, there is no reason for the central bank to rush to adjust its monetary policy. (This is what I mentioned here)
The dots’ graph, reflecting the FOMC members’ expectations, considers that the fed funds rate will be stable in 2019, decline once in 2020 before going back up again. in 2021 at the current level.
The US central bank, which does not want to hurry given the economic situation still strong, does not want to give signals on what it will do. This is the end of the Fed’s forward guidance. It does not commit to anything, thus confirming its desire not to tie hands with commitments that may not be in line with changing circumstances.
The Fed seems open to lower its main rate in September
#recession #usmonetarypolicy #FederalReserve #interestrates
Inversion of the US yield curve. The signal for a forthcoming recession. No one wants to take bets on the future.
Huge drop of the 30y rate in the US It’s now below 2.6%. Bleak expectations are now a source of concern