You Should Be Worried When FED Starts to Cut Rates

image credit to investors-corner.bnpparibas-am.com

Market rebound strongly in last two days after FED Chairman indicating future rate cut if the economy situation is getting worse due to trade war.

Fed Inches Toward Rate Cut as Trade War Frays Patience <From Bloomberge.com>

“The Federal Reserve’s top policymakers aren’t yet ready to cut interest rates, but worsening trade tensions are nudging them in that direction.

In separate comments Tuesday, Fed Chair Jerome Powell and his No. 2, Richard Clarida, reassured nervous investors they’re watching closely for signs that disputes between the U.S. and its trading partners are denting the outlook for the world’s largest economy. Their remarks moved the Fed slightly closer to its first rate cut since 2008.”

But shouldn’t we be more worried when FED is going to cut-rate as it shows that economy is not doing well or deteriorating? Look at below news on latest PMI from some countries, including Singapore…

Singapore PMI drops below 50 for first time in almost 3 years<from YahooFinance.sg>

Growth in China's services sector eases in May on slower export sales: Caixin PMI < From Reuters.com>

Global Manufacturing PMI at 2½ year low as business conditions worsen in one-in-three countries <From ISHMarkit.com>

FED Rates vs Recession :

Trade war could wipe $455 billion off global GDP next year, IMF warns < from CNBC.com>

It will be very interesting to see the data in the next few months when imparting from trade war starts to bite.

Well, we may see the market continue to head north if FED really made the first interest rate cut since they started to increase in Dec 2017, as usual markets are irrational, so do I … but when more and more bad news emerges ranging from corporate profits to macro economic's indicators. The market may start to react accordingly.

Cheers!

image credit to FED US.gov

**Shaded area = Recession period

You may notice that right before recessions, the Fed tends to hike rates upward and then when the recession actually hits, it cuts rates. This has happened without fail in 1957-58, 1960-61, 1970-71, 1974-75, 1980, 1982-83, 1990-91, 2001-02, and 2007-09.

Quote Of The Day:

“The Mexican debt crisis, Latin American debt crisis, the crises of the 1990s, the Wall Street stock market crash, and other events should have reminded us, and did remind us, that financial instability remains a concern, remains a problem.” Ben Bernanke