For the past three weeks, investors have been eagerly waiting for an indication by the Federal Reserve that an interest rate cut would be imminent in the very near future.
Fed chairman, Jerome Powell, discounted the good economic news, stating that the positive factors, continuing low inflation, which has consistently been below the Fed’s 2% target rate and low unemployment, were insufficient reasons, in his opinion, to offset the unforeseeable risks a rupture in the trading relationship between China and the U.S. would have on the economy. Since a trade agreement with China now appears rather remote, the Fed must take into account risks to the economy that were not as imminent as they were two months ago.
Shortly after Powell’s announcement that the Fed was leaning towards a rate cut after its July 31st meeting, investors began switching over to riskier assets, which they believed had the blessing of the Fed.
After Powell’s comments, like spoiled children, investors acted as if a rate cut of 50 basis points was somehow foreordained. Indeed, judging by some of the articles in the Wall Street Journal, Barrons and other financial publications, some investors were talking as if it was their divine right to be coddled by the Fed and receive a hefty rate reduction. In late June, the fed funds futures market put