Financial markets — not to mention the White House — are demanding a cut, and it's likely to get at least one before the year ends.
"We now see a base case in which the Fed will reluctantly cut rates three times starting in September in a mini-easing cycle intended to insure against downside risks associated with trade conflict," Evercore economits Krishna Guha and Ernie Tedeschi said in a note, "though we do not think the [Federal Open Market Committee] has yet reached this conclusion and there remains a substantial possibility it will get away with keeping rates on hold."trade impasse between the U.S.
In recent days, the three-month Treasury yield has eclipsed the benchmark 10-year note by nearly a quarter point. An inverted yield curve is generally the bond market's signal that it expects longer-range growth to be less than the near term.Regardless of which factor is more dominant, markets now feel the Fed has no choice but to ease.
Should the Fed delay hiking, they said, "the path to cuts may be a painful one for equity investors." "There's enough strength in the labor market to allow them to think about raising rates still, but there's not enough inflationary pressure to require them to do so," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "My own read is I don't think that economic conditions warrant a rate cut, and whatever economic stress there is at the moment is largely man-made.
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