{"id":152586,"date":"2019-08-01T09:05:18","date_gmt":"2019-08-01T13:05:18","guid":{"rendered":"https:\/\/www.countingpips.com\/?p=152586"},"modified":"2019-08-01T09:34:28","modified_gmt":"2019-08-01T13:34:28","slug":"markets-unimpressed-with-the-fed-rate-cut","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2019\/08\/markets-unimpressed-with-the-fed-rate-cut\/","title":{"rendered":"Markets unimpressed with the Fed rate cut"},"content":{"rendered":"
August 1, 2019<\/div>
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By Hussein Sayed, Chief Market Strategist (Gulf & MENA), ForexTime<\/a><\/strong><\/p>\n

The US Federal Reserve cut its interest rates by 25 basis points on Wednesday for the first time since the global financial crisis hit the global economy in 2008. The central bank also announced to end its balance sheet reduction immediately, which was supposed to occur in September. Typically easing monetary policy is intended to boost risk assets and lower the currency. However, the reaction in financial markets was totally the opposite following the announcement. The US Dollar rose to a two-year high against the Euro, and stocks suffered steep losses after Fed Chair Powell\u2019s press conference.<\/p>\n

What went wrong?<\/strong><\/p>\n

The rate cut was fully baked into asset prices before heading into yesterday\u2019s monetary policy meeting. Some market participants were even anticipating a more aggressive 50 basis point cut, but it was mainly the forward guidance that upset the markets.<\/p>\n

\u201cLet me be clear: What I said was it\u2019s not the beginning of a long series of rate cuts\u201d, said Jerome Powell.<\/p>\n

Investors had been expecting the beginning of an easing cycle that may extend beyond 2020. This wasn\u2019t the message they got from Chair Powell. While Powell didn\u2019t rule out further rate cuts, he didn\u2019t see Wednesday\u2019s decision as the beginning of an extended easing cycle. Instead, he explained that their decision is a mid-cycle adjustment to policy. His press conference has created more confusion than clarity, leaving markets guessing the next step.<\/p>

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Given that two members from the Federal Reserve – Eric Rosengren and Esther George voted against the FOMC decision to lower rates suggests that not all members agree to Powell\u2019s economic assessment. If dissenters increase in upcoming meetings, the central bank\u2019s independency will come into question.<\/p>\n

Back to \u2018good news is bad news\u2019<\/em><\/strong><\/p>\n

It seems we\u2019re returning to an era where good news is bad news to equities. With markets still anticipating a 54% chance of a rate cut in September according to CME Fed watch, this percentage may move either direction with the release of economic data. An upside surprise on Friday\u2019s non-farm payrolls report may significantly lower expectations of further easing in the upcoming FOMC meeting in September, especially if wage growth beats market expectations.\u00a0 So, expect an upside surprise in tomorrow\u2019s data releases to be negative news for equity markets and vice versa.<\/p>\n

BoE mission is more complicated<\/strong><\/p>\n

The focus today turns to the Bank of England (BoE) and Sterling. Mark Carney has an even tougher job than Fed Chair Jerome Powell, given the fact that we\u2019re less than three months away from the Brexit deadline. With the possibility of the UK crashing out of the EU without a deal having increased significantly, the assumption of gradual tightening in monetary policy is no longer realistic.<\/p>\n

The BoE\u2019s forecast for inflation and growth is not likely to be the major barometer for where interest rates are heading next, unless they publish forecasts under a deal and no-deal scenario. Overall, we expect rates to be kept on hold at 0.75% and the Brexit topic to dominate Carney\u2019s press conference. Unless the BoE reiterates that tighter monetary policy may be needed, expect Sterling\u2019s slide to resume.<\/p>\n

Disclaimer: <\/strong>The content in this article comprises personal opinions and should not be construed as containing personal and\/or other investment advice and\/or an offer of and\/or solicitation for any transactions in financial instruments and\/or a guarantee and\/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.<\/em><\/p>\n

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\"Forex-Time-Logo\"Article by ForexTime<\/a><\/span><\/strong><\/p>\n

ForexTime Ltd (FXTM)<\/strong> is an award winning international online forex broker regulated by CySEC 185\/12 www.forextime.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Hussein Sayed, Chief Market Strategist (Gulf & MENA), ForexTime The US Federal Reserve cut its interest rates by 25 basis points on Wednesday for the first time since the global financial crisis hit the global economy in 2008. The central bank also announced to end its balance sheet reduction immediately, which was supposed to […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-152586","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/152586","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=152586"}],"version-history":[{"count":5,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/152586\/revisions"}],"predecessor-version":[{"id":152623,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/152586\/revisions\/152623"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=152586"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=152586"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=152586"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}