The Fed/Pres Interest rate battle has been waging since Donald Trump moved into the White House; before that, nobody considered the possibility of either one. Once elected, Trump’s threats went to the heart of the matter – FED head Powell’s job was said to be on the line.
Trump’s call for cheap money is understandable – it inflates the market and provides the impression of a stronger economy as 2020 elections approach.
The kowtowing of the Federal Reserve is slightly less translucent. Although some point to the risks posed by Trump’s trade wars to the global economy, the data is – on the whole – unsupportive of a rate cut.
Indeed, a rate cut would be instrumental in inflating an already bubbled marketplace. Still at their highest since 2008, low interest rates before the first December 2015 rate hike did very little to convince borrowers to invest in growth; instead they merely inflated the bubble. Moreover, GDP has been growing steadily alongside 3 years of ¼ percent increments.
At present, the consensus is for at least a 25-point drop this week. Gold is at a 6-year high in anticipation, and global markets are trending sideways in hopes of catching a ride as US indexes soar. The Fed’s board of governors is almost entirely comprised of Trump nominees, the latest – Judy Shelton – a believer in the reinstatement of the Gold Standard, on one hand, in low interest rates, on the other.
The question now is not whether the FED will raise or lower rates, nor by how much. The question is now whether traders will still see any correlation between that and the intrinsic value of the US Dollar.
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