Fed May Not Prevent a Recession as Trump Presses

Aug 19, 2019 | Monday



U.S. President Donald Trump pushes the Federal Reserve to assist in blocking off the feared economic slowdown. However, it is not sure if the central bank has adequate firepower left to do it.

Aside from that, the Fed does not have enough reason to act more aggressively than they already did, according to some analyst. And this was because the growth signs remain intact, even though it dinged slightly due to concerns on tariffs and slowdown in areas across the U.S. Chief Financial Economist Chris Rupkey said that the Federal Reserve officials need to discuss "cutting interest rates and driving down the yields on safe investments like Treasury bonds and noted to record low levels."

AHe also added that they don't need to explain to the voters or Trump economics team. However, they must "explain themselves to the history books. Rupkey stated, "The Fed's interest rate cut looks more out of line than ever, given the strength of the economy."

Fed on Rate Cuts

Then, Trump still clamors further for rate cuts. And the market expects to have two more cuts for this year. As a result, this will leave the Fed with insufficient room to cut more as it is recently aiming its benchmark rate in the range of 2% to 2.25%.

Furthermore, it is crucial to know whether the Fed can protect the U.S. from a soft patch or worse. On Wednesday, Wall Street saw its worst day for the year. The Dow industrials dropped 3%. Then, the bond market, albeit briefly, had the 2-year Treasury note yield surge over the 10-year. And this is a hint which led to recessions in the past.

Above all, the Fed might have some difficulties by itself in stemming the fears. And this follows a decade in which the central bank became pretty successful in stepping in to save the day during market distress.


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