WHAT COULD POSSIBLY GO WRONG?
Financial follies and disaster in the making
On July 10, Powell told us in no uncertain terms that it has not. Barring a sudden improvement over the next two weeks, the Fed will almost surely kick off a new rate-cut cycle when it meets at the end of the month. In fact, according to the CME Group’s FedWatch Tool, the probability of at least a 0.25% cut this month is now 100%. The only question is whether the Fed cuts rates by 0.25% or a more extreme 0.5%. Uncertainty at the Fed isn’t the only red flag we’re seeing today. The 10-year U.S. Treasury bond is the global paper-currency financial system’s “barometer.” The yield on this bond sets the price on all other risk assets. When this 10-year real yield is steady or rising, you’ll see “clear skies” ahead. But when the barometer turns sharply lower, and especially when it breaks through key Weathering the storm...
Bracing for the worst...
For months, the market has been anticipating that the Federal Reserve could begin to cut interest rates as soon as this month. But following a one-two punch of Fed announcements July 10, it’s now absolutely convinced. During testimony before the House Financial Services Committee, Fed Chairman Jerome Powell warned that the bank’s view of the economy hadn’t changed. He cited “uncertainties around global growth and trade” as a significant factor in the decision to leave rates unchanged. That same day, the Fed released the minutes from its June policy meeting and these painted a similarly “dovish” picture. Fed officials voted to leave rates unchanged in June, but many were in favor of future cuts if their outlook for the economy did not improve...
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July 2019
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