Financial markets continue to levitate, regardless of corporate earnings. Markets bounced Tuesday after Fed Chairman Jerome Powell intimated the Fed could cut rates if the trade war intensifies. Below is a synopsis of Powell’s comments and my interpretation.
“We do not know how or when these issues will be resolved,” he said, in remarks that helped stoke a powerful rally on Wall Street. “We are closely monitoring the implications of these developments for the US economic outlook.”
Over the past few months, Powell’s comments have been all over the place. The Fed hiked rates by a quarter point in December and intimated more rate hikes could lie ahead. At its March 2019 FOMC meeting, the Fed appeared to change course, implying rates could shift in either direction. At the time, the March jobs report showed low unemployment and wage growth that exceeded 3%. Wage growth implied the economy was strong, yet other metrics suggested otherwise.
Growth in personal consumption expenditures (“PCE”) in March was 1.6%, less than the 2.0% range targeted by the Fed. Even more alarming was that the yield curve inverted in March. An inverted yield curve’s ability to predict recessions implied the economy may not have been on strong footing. I believe this is really what prompted the Fed to become more open on its rate policy. Read more: