FOMC Day: Jul 31, 2019

It’s been a long time coming and the subject of unending debate.  Almost everybody expects a 25 bps cut — though those who argue against a cut make very compelling arguments.

Consider the last time the Fed cut rates.  It was December 16, 2008 and they cut the target rate range by 75-100 bps — the same extent that Trump is arguing for now.  The circumstances are clearly a little different this time:

Perhaps the biggest contrast between now and then is who’s running the show.It’s anyone’s guess what the FOMC will do and Powell will say.  Our analog suggests the market will be disappointed.  Our yield curve model suggests the market will be disappointed. The currency picture suggests the market will be disappointed.

Even the futures seem rather blasé following yesterday’s enthusiastic bounce on the SMA10.Most importantly, all the effort Trump has put into driving oil and gas prices lower in order to force inflation lower and pressure the Fed into more accommodative policy has: (a) already driven interest rates much lower, and (b) sends bearish signals to the algos which are largely responsible for the market’s day-to-day gyrations.

The Fed obviously knows this and has taken it into account in its rate decision deliberations.  It’s the most significant factor behind CPI dropping through Core CPI.The question remains whether or not the data they’ll depend in making their decision includes the stock market’s likely reaction — always a safe bet in the past.

We’ll find out shortly.

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