{"id":1574,"date":"2019-07-31T16:08:26","date_gmt":"2019-07-31T20:08:26","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1574"},"modified":"2019-07-31T16:08:26","modified_gmt":"2019-07-31T20:08:26","slug":"july-30-31-2019-fomc-meeting","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1574","title":{"rendered":"July 30-31, 2019 FOMC Meeting"},"content":{"rendered":"\n

In a Nutshell:<\/strong>  \u201cIn light of the implications of global\ndevelopments for the economic outlook as well as muted inflation pressures, the\nCommittee decided to lower the target range for the federal funds rate\u2026\u201d<\/em><\/strong><\/p>\n\n\n\n

Decision:<\/em><\/strong> Fed funds rate target range reduced to 2.00% to 2.25%.\n<\/em><\/p>\n\n\n\n

As expected, but not\nuniversally agreed with, the Fed cut interest rates by 25 basis points – one-quarter\npoint \u2013 for the first time in a decade. \nThat occurred despite an economic statement that was the same as in June\nand an economy where the data have been better than expected.<\/p>\n\n\n\n

So, why did the Fed\nreduce rates now?  The key factors appear\nto be a fear of too low inflation that could lead to an extended,\nJapanese-style deflationary slump and worries about the world economy that were\nlargely created by trade policy.  <\/p>\n\n\n\n

On the inflation front,\nit looks like inflation expectations are the key. Fed Chair Powell recognized\nthat 25 basis points will not cure the problem of below target inflation.  Indeed, it is fairly clear that a\nquarter-point cut will have limited economic impacts.  But he believes that image matters and the\nreduction in rates and the end of the quantitative tightening process (which\nwas also announced), should provide the confidence that inflation will ultimately\nmove back toward target levels.  I guess\nthe Fed once again is putting its stock in jawboning, a strategy that hasn\u2019t\nworked well in the past. He also noted that it might take longer to get back to\ntarget.  That was likely noted so he can\nbuy the Fed more time.<\/p>\n\n\n\n

As for the world economy,\nthe idea of cutting rates was to take out some insurance against a domestic\nslowdown induced by the trade issues.  Of\ncourse, he did not indicate how a rate cut would accomplish that goal.  That\u2019s because it cannot.<\/p>\n\n\n\n

As for future rate cuts,\nhe hinted that this was the start of a process, but he tried to make it clear\nit would not be a long process.  In other\nwords, we should expect another rate cut, though it is not clear if that might\nhappen at the next meeting or one a little later.  Of course, if we keep getting solid data, who\nknows what this Fed will do.  <\/p>\n\n\n\n

So, what should we make\nof this move.  The Fed has now become the\neconomic mouth that is trying to roar.  That\nis, he thinks that when the Fed talks, everyone listens.  They do, but do they believe in what the Fed\nis saying?  That\u2019s unclear because rates\nare already low, global factors are beyond the Fed\u2019s control and low inflation\nhas been an issue for years now and small rate adjustments can accomplish very\nlittle.<\/p>\n\n\n\n

But to me, the real\nproblem is the markets.  The Fed became\nthe drug dealer of choice when it implemented and more importantly, sustained\nquantitative easing.  But the junkies,\ni.e., the markets, are now controlling the drug dealer.  When the markets get starved for more\nopiates, they scream and yell and ultimately, the Fed provides the drugs.  It did that in two ways today, by lowering\nrates and ending QT early.  <\/p>\n\n\n\n

It is likely the markets\nwill soon start demanding more.  Indeed,\nthe huge decline in the stock indices in the first hour after the announcement\nand during Mr. Powell\u2019s press conference, as well as the rise in the dollar,\nseemed to say that one 25 basis point cut will not do it.  As addicts will tell you, they can never get\nenough and the Fed is opening itself up to that potential problem, especially\nif the trade negotiations with China drag on. \n<\/p>\n\n\n\n

If Mr. Powell wants to\ndelude himself by continuing to make the argument that this is just a\n\u201cmid-cycle adjustment\u201d, then so be it. \nBut he is now at the mercy of a mercurial president, foreign economies over\nwhich he has no control and economic\/inflation perceptions rather than economic\nfundamentals.  As Oliver Hardy liked to\nsay: \u201cWell, here’s another nice mess you’ve gotten (us) into<\/em>.\u201d(The next FOMC meeting is September 17-18, 2019.)  <\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

In a Nutshell:  \u201cIn light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate\u2026\u201d Decision: Fed funds rate target range reduced to 2.00% to 2.25%. As expected, but not universally agreed with, the Fed cut … Continue reading July 30-31, 2019 FOMC Meeting<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1574","post","type-post","status-publish","format-standard","hentry","category-economic-indicators"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1574","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1574"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1574\/revisions"}],"predecessor-version":[{"id":1575,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1574\/revisions\/1575"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1574"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1574"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1574"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}