Here’s what they’ll know then that they don’t know now.

The Fed’s decision not to cut rates last week had to be somewhat disquieting to President Trump and his advisors. The rhetoric out of the White House over the past few months has repeatedly called for lower interest rates on the short end of the curve, but to no avail as the fed funds rate remained steady, sinking global yields.  Even members of the FRB were mixed in their message about where rates might go.  Seven FED members currently think rates need to be lower.  It’s complicated.

If growth slows because of trade issues should the FED cut rates?  Would it help? 

Jobs are plentiful and GDP growth has exceeded expectations, but Inflation continues to be soft.   The next FOMC meeting is the last two days of July and by then the data dependent FED should have a better understanding on what policy actions are needed.

Here’s what they’ll know then that they don’t know now… the outcome of the US-China summit talks, the May PCE, June’s PMI, employment numbers out on July 5^th, and 2^nd quarter GDP. 

Any one of these has the potential to influence FED actions late next month.  If the economy is slowing a rate cut is needed but there’s not much current data that indicates this.  The world economy is slowing and it’s because of tariffs.  Most countries have up to 50% of their output tied to trade, while the US has only 10 %.  It would be hard to imagine that a domestic rate cut would help growth here or in the global economy unless the US economy is slowing also.  But the FED mandate is dual and perhaps a rate cut is a way to get more inflation into our economy.  Keep an eye on gold.  In dollar terms it has risen over 9% since May 30^th. A sign of stress in the system as buyers lose confidence in central banks or do new highs indicate upcoming stagflation?

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