Today the Federal Reserve will convene to discuss cutting interest rates for the third time. Jerome Powell, the Fed Chairman will presumably sign off on the cut to keep US President, Donald Trump, and bond investors satisfied. However, according to the CEO of Quill Intelligence, Danielle DiMartino Booth, if the Fed cuts rates then it becomes forced to highly depend on the economic data. She shares that she is skeptical that by cutting rates the Fed will be able to prevent economic stagnation. She is concerned because the service sector, the powerhouse of the US economy, is increasingly lapsing and unstable. DiMartino Booth continues to forecast that it is probable that the Fed is going to attempt to keep the market moving along by printing as much liquidity as they can.
Moreover, Dimartino Booth says that the markets are not pleased; they are “euphoric.” Although earnings are slumping, trading in the stock market is at an all-time high. What happens next is up to the Federal Reserve and Powell & Co. Hopefully, they will pump as much liquidity that is necessary. It is crucial for them to rally to help promote economic expansion.
DiMartino Booth warned that investors be cautious of the rally seen in the market. Stocks are primarily rising based on the anticipation that the Fed will save the day. These individual companies’ foundations cannot rationalize their present prices. She continues to share that she is unsure of the Fed continuing to lower rates because with such high valuations the Fed will struggle to avoid the recession. If rate cuts take place, federal fund rates will fall to a low 1.5% to 1.75%. This short-term rate will impact how much borrowers will pay for credit cards, mortgages and auto loans.
Unemployment rate figures for October will be reported at the end of the week. Predictions are that it will see a slight rise to 3.6 percent. Thus, DiMartino Booth states, “a fresh 50-year low on the unemployment rate delivers plenty of scopes for the Federal Reserve Bank to not cut rates.”
Observe the Trade Talks and Future Earnings
Predictions show that the Fed will maintain rates stable rates for now. In Bloomberg, DiMartino Booth shared that “another leg lower in mortgage rates may be the best thing that the housing market can hope to sustain momentum.”
Chief Investment Strategist at Oppenheimer Asset Management, John Stoltzfus, will discuss the interest rate cuts and US-China trade war tension. Stoltzfus mentions that he anticipates positive outcomes from the trade talk, but not without some pulling and tugging. He added that the market has been holding up well considering the apprehension of a declining economy. Stoltzfus is hopeful that earnings will continue to exceed predictions, as they have been doing in the third quarter. However, still cautious he states that it is best to hope for the best, and not to get ahead of ourselves. Let us see where the interest cut will lead, and how the final negotiations for the trade deal with pan out.