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Thread: Fed Looks To Cut Rate To Boost Booming Economy... wait what?

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    Lightbulb Fed Looks To Cut Rate To Boost Booming Economy... wait what?

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    Quote Originally Posted by article
    The Federal Reserve is poised to cut interest rates on Wednesday for the first time since the 2008 financial crisis to extend the longest economic expansion in US history.

    The move would come despite a strong US economy. But some cracks are beginning to show: The global economy is softening, American manufacturing is slowing, and the global trade war isn't helping matters.
    The US is at some of the lowest unemployment levels in its history. The GDP is advancing a reasonable amount. Inflation is low (as long as you ignore health care and education).

    So of course, the Fed is going to cut rates... wait... Record unemployment, and they are going to cut rates? It is currently 2.5%... which is low. How low? Before the W Admin, when it dropped after the short recession that overlapped the Clinton and W Administrations, the last time it was that low, the Beatles were about to visit the US for the first time. So we are already on historical low interest rates.

    It seems a bit odd to be dropping rates, while talking about how great the economy is. Of course, Trump has been begging for cuts because he wants to relive stagflation of the 70s, well, not him personally. He wants the short term benefits. He won't give a damn when growth stops and inflation grows.

    So the US is looking to cut rates while there is growth. Which ultimately makes one wonder if there even is growth or who is benefiting from this growth.

    Seems interesting that in the second quarter, excluding Government spending, the GDP rose by only 1.2%.

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    Monetary policy works with a long and variable lag, so the Fed may be anticipating a slowdown a year to a year and a half from niw.
    Of course, Mr Trump's stupid and intemperare complaining makes it reasonable to question the Fed's motives.

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    "Powell, and others, have argued central banks should get ahead of a downturn after seeing any signs of weakness to get more bang for their buck in such a low-interest rate environment."

    I'm no economist but I am good at math. If we "get ahead" of downturn by cutting rates and then that downturn happens anyway.......what then? Not much room to cut rates further if something bad does happen.

    Also, could it be that Trump ratchets up the trade rhetoric in order to make the future look worse so that the fed cuts rates and boosts the economy briefly before/during the election season? Heard that idea floated by a former Fed member this morning on NPR. He wasn't accusing the Fed of being political but was saying they may be reacting to the politics.

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    I don't think it'll do much. Help keep inflation low.

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    Quote Originally Posted by cycomiko View Post
    "Powell, and others, have argued central banks should get ahead of a downturn after seeing any signs of weakness to get more bang for their buck in such a low-interest rate environment."

    I'm no economist but I am good at math. If we "get ahead" of downturn by cutting rates and then that downturn happens anyway.......what then? Not much room to cut rates further if something bad does happen.
    The intent is to avoid the downturn. But it does run the risk that at some juncture, the Fed will not have any useful tools to use.
    Quote Originally Posted by cycomiko View Post
    Also, could it be that Trump ratchets up the trade rhetoric in order to make the future look worse so that the fed cuts rates and boosts the economy briefly before/during the election season? Heard that idea floated by a former Fed member this morning on NPR. He wasn't accusing the Fed of being political but was saying they may be reacting to the politics.
    That is possible, but Mr. Trump's irresponsible remarks are causing the Fed's judgment (and thereby effectiveness) to be unnecessarily questioned.

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    Quote Originally Posted by laughing dog View Post
    Quote Originally Posted by cycomiko View Post
    "Powell, and others, have argued central banks should get ahead of a downturn after seeing any signs of weakness to get more bang for their buck in such a low-interest rate environment."

    I'm no economist but I am good at math. If we "get ahead" of downturn by cutting rates and then that downturn happens anyway.......what then? Not much room to cut rates further if something bad does happen.
    The intent is to avoid the downturn. But it does run the risk that at some juncture, the Fed will not have any useful tools to use.
    Quote Originally Posted by cycomiko View Post
    Also, could it be that Trump ratchets up the trade rhetoric in order to make the future look worse so that the fed cuts rates and boosts the economy briefly before/during the election season? Heard that idea floated by a former Fed member this morning on NPR. He wasn't accusing the Fed of being political but was saying they may be reacting to the politics.
    That is possible, but Mr. Trump's irresponsible remarks are causing the Fed's judgment (and thereby effectiveness) to be unnecessarily questioned.
    It is hard to take the Fed too seriously when they drop the rate down a step... and then indicate it ain't going any lower for the foreseeable future, which sends a mixed message of... why drop it a quarter percent?

    This sends a particularly insane man a signal they had no interest in wanting to send.

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    I don't think should be judged on what an insane person will conclude.

    A large reduction in interest rates at this time would send a clear message that the Fed forecasts a real strong downturn to the financial markets.

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    Quote Originally Posted by Jimmy Higgins View Post
    link

    Quote Originally Posted by article
    The Federal Reserve is poised to cut interest rates on Wednesday for the first time since the 2008 financial crisis to extend the longest economic expansion in US history.

    The move would come despite a strong US economy. But some cracks are beginning to show: The global economy is softening, American manufacturing is slowing, and the global trade war isn't helping matters.
    The US is at some of the lowest unemployment levels in its history. The GDP is advancing a reasonable amount. Inflation is low (as long as you ignore health care and education).

    So of course, the Fed is going to cut rates... wait... Record unemployment, and they are going to cut rates? It is currently 2.5%... which is low. How low? Before the W Admin, when it dropped after the short recession that overlapped the Clinton and W Administrations, the last time it was that low, the Beatles were about to visit the US for the first time. So we are already on historical low interest rates.

    It seems a bit odd to be dropping rates, while talking about how great the economy is. Of course, Trump has been begging for cuts because he wants to relive stagflation of the 70s, well, not him personally. He wants the short term benefits. He won't give a damn when growth stops and inflation grows.

    So the US is looking to cut rates while there is growth. Which ultimately makes one wonder if there even is growth or who is benefiting from this growth.

    Seems interesting that in the second quarter, excluding Government spending, the GDP rose by only 1.2%.
    Apparently the DJI did not think the cut was enough because it lost 334 points today.

    As everyone has mentioned, there is little further room for more cuts which makes one wonder where this is going to end up. Not mentioned in your OP is the fact that housing asset values are bubbled up on the coasts which also heavily depend on interest rates. If I were the fed, that is what I would be worried about.

    As far as Trump saying the economy is so great, I think that's a bunch of crap and I suspect even he thinks that himself too. He just wants another term and that's not going to happen if the economy tanks on his watch.

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    To me, it looked like the Fed got bullied by Trump into starting to cut rates, even though the Fed's explanation as to why it started to cut rates lacked clarity. Apparently, the Fed is no longer an independent body.

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    Though I may not agree with what the FR has done in the past, there are warning signs. The 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity is flashing a serious warning sign (which is a fairly accurate recession indicator for the future):
    https://fred.stlouisfed.org/series/T10Y3M

    The FR also is stopping its reduction of balance sheets (quantitative easing) 2 months early on 1 Aug. that it has been doing for about 2 years now. The FR is usually chasing the falling ball of recession and is rarely ahead of it.

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