The Fed halts rate cuts seeing improvements in global risk

Joseph Trevisani FXStreet

Federal Reserve Chairman Jerome Powell confirmed in person what had been implied in the bank’s statement announcing its third 0.25% rate reduction in as many meetings.

The central bank is finished cutting rates and will wait for new data on the economy, though it would take a “material change” for the governors to again alter policy.

The FOMC statement at the September 18^th meeting noted that the “Committee…will act as appropriate to sustain the expansion…” At the October meeting the FOMC said that the “Committee will continue to monitor the implications of incoming information…” For the Fed the shift from action to monitoring is indeed a material change.

In his news conference Mr. Powell observed that of the three risks facing the US economy over the past year, the slowdown in global growth, trade and Brexit, two, trade and Brexit, have moved closer to solution.

“The principal risks we have been monitoring have been slowing global growth and trade. We now have a potential trade agreement with China...which could bode well for business activity over time. ..It appears as well, that the risk of a no deal Brexit has...subsided,” he said.

The Treasury yield curve has also indicated diminishing risks to the US economy.

Rates have moved sharply higher over the past two months. The yield on the 2-year Treasury has gained 24 basis points to 1.60% and the 10-year has added 34 points to 1.77%.

After inverting briefly in late August with yields on the 10-year falling as much as five points below the 2-year and exciting much recession talk, the spread has reversed back to normal dimensions and was 17 points wide on Wednesday afternoon well with the standard range of the past several years.

Reuters

Mr. Powell said that while he expected the trade deal with China would have positive effects on business sentiment and investment it would take time for those effects to materialize.

Higher inflation is not one of the Fed main concerns. “There are significant disinflationary pressures around the world. We do not think we are exempt from them,” he observed.

The dollar initially moved higher on the FOMC statement and Chairman’s Powell’s confirmation that the bank has reverted to a neutral stance. His later comment that there would be no rate hikes unless there was a “significant move up in inflation,” sent the greenback tumbling to levels below where it had been before the Fed announcement.

Equities retained most of their post-FOMC gains with the clear indications of a stronger economy and the reduction in global risks outweighing the end of lower rates. The S&P 500 closed at a record and the Dow finished about 200 points below its own all-time high.

Author

Joseph Trevisani

FXStreet

Joseph Trevisani began his thirty-year career in the financial markets at Credit Suisse in New York and Singapore where he worked for 12 years as an interbank currency trader and trading desk manager.

GBP/USD bounces off lows, back above 1.3200

After bottoming out near 1.3160, GBP/USD manages to regain a bit of shine and reclaim the 1.3200 mark and beyond at the end of the week. Stronger-than-expected UK Retail Sales data seem to be helping the British Pound limit its losses, while the chaotic UK political environment keeps the bulls at bay for now.

EUR/USD looks consolidative around 1.1460

EUR/USD stages a modest rebound after slipping to a three-month low below 1.1420 at the end of the week. That said, the pair now looks to consolidate humble gains just above 1.1460 despite growing uncertainty surrounding the next round of US-Iran negotiations, which keeps the US Dollar’s downside contained.

Gold slips back to six-day lows, targets $4,100

Gold retreats for the third consecutive day on Friday, eroding gains seen in the first half of the week and approaching the key $4,100 mark per troy ounce. Indeed, the precious metal continues to face headwinds from the Fed's hawkish stance and renewed uncertainty surrounding the next round of US-Iran negotiations.

Solana extends correction despite ETF inflows, RWA adoption

Solana (SOL) price edges below $70 extending its losses for the fourth straight day this week. The institutional demand for Solana is building, with steady inflows so far this week and Morgan Stanley’s amended S-1 filing for a Solana-focused Exchange-Traded Fund.

The Iran war didn't break the US economy, but what happens next?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Regime change: Inside Kevin Warsh's first move to make the Fed unreadable on purpose

The rate did not move. That was the least interesting thing about Kevin Warsh's first meeting in charge of the Fed. The FOMC held its benchmark at 3.50%-3.75% for the fourth straight meeting, exactly as priced, and then the new chair used his first press conference to dismantle the machinery the market has leaned on for a decade.