Federal Reserve cuts interest rate for third time this year in effort to boost U.S. economy

[BumRushDaShow]

Source: Washington Post



The Federal Reserve reduced the benchmark U.S. interest rate for the third time this year on Wednesday in an effort to boost the economy as the trade war and a global slowdown threaten to drag the U.S. economy down.

Fed leaders have stressed that they do not see a recession on the horizon. Instead, they have sought to portray these rate reductions as “insurance” cuts that are meant to give the economy extra protection in a world of rising uncertainty.

The central bank lowered the benchmark interest rate a quarter of a percentage point to a range of 1.5 to 1.75 percent. The move should trigger mortgage, auto and personal loan rates to fall, making it cheaper to borrow money. Home prices and home sales have ticked up since the Fed began lowering rates in late July.

President Trump and Wall Street are looking for signals of how much more the Fed will lower rates heading into the presidential election. Fed leaders signaled Wednesday that they are going to wait and see what happens to the economy and trade talks before they commit to another cut. All summer Fed Chair Powell stressed that the Fed would “act as appropriate to sustain the expansion,” but that phrase was scrapped from the statement announcing the latest decision.

Read more: https://www.washingtonpost.com/business/2019/10/30/federal-reserve-cuts-interest-rate-third-time-this-year-effort-boost-us-economy/

[bucolic_frolic]

1. They're crazier than bedbugs

The economy has overcapacity from 10 years of monetary stimulus, and the only remedy to keep it going is more stimulus amid trillion dollar annual budgetary deficits. There is a day of reckoning.

[roamer65]

4. Yup, it will be a currency crisis.

[BumRushDaShow]

5. I have been seeing articles about "emergency" overnight lending being made by the fed

A crack just emerged in the financial markets: The NY Fed spends $53 billion to rescue the overnight lending market

By Matt Egan, CNN Business
Updated 11:54 AM ET, Wed September 18, 2019

New York (CNN Business)Borrowing rates skyrocketed on Tuesday in a corner of the markets the public rarely notices but that is critical to the functioning of the global financial system.

The spike in overnight borrowing rates forced the New York Federal Reserve to come to the rescue with a special operation aimed at easing stress in financial markets. It was the NY Fed's first such rescue operation in a decade, the last occurring in late 2008. "It's unprecedented, at least in the post-crisis era," said Mark Cabana, rates strategist at Bank of America Merrill Lynch.

On Tuesday morning, the NY Fed launched what's called an "overnight repo operation," during which the central bank attempts to ease pressure in markets by purchasing Treasuries and other securities. The goal is to pump money into the system to keep borrowing costs from creeping above the Fed's target range. The first attempt by the NY Fed was canceled because of "technical difficulties." Minutes later, the NY Fed successfully injected $53 billion into the system.

https://www.cnn.com/2019/09/17/business/overnight-lending-rate-spike-ny-fed/index.html

and it seems some of this (speculation) may be to reduce the interest on those loans. You also had Mnuchin do this a few months ago -

U.S. Officials Meet in Secret Over Junk-Loan Frenzy as Recession Alarms Flash

By Bradley Keoun
Updated Jun 1, 2019

U.S. Treasury Secretary Steven Mnuchin on Thursday led a secret meeting of top U.S. financial regulators on the risks to global markets from the recent surge in corporate borrowing -- a growing concern as fears mount that the economy might be headed for a slowdown or a recession. The Financial Stability Oversight Council, formed in the wake of the 2008 financial crisis to prevent a repeat, met "in executive session," or behind closed doors, according to a statement released by the Treasury Department's public-affairs unit following the meeting.

Members of the group include Federal Reserve Chairman Jerome Powell as well as the heads of the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., Consumer Financial Protection Bureau, Securities and Exchange Commission and Commodity Futures Trading Commission. No details were provided on the gist of the discussion, though according to the statement the panel heard an "update" from Craig Phillips, a counselor to Mnuchin, on recent market developments involving "corporate credit and leveraged lending."

Leveraged lending is the financial industry's term for the practice of making loans to companies with poor credit ratings, colloquially known as junk. Historically, the market was dominated by banks, but in recent years investment firms and other non-bank lenders joined in; the outstanding amount of the loans has mushroomed over the past decade to about $1.2 trillion, eclipsing the more-established junk-bond market.

There's also been a surge in borrowing by companies with triple-B ratings, which rank just above junk but could face dire downgrades if an economic slowdown shrinks profits for those borrowers. That category of debt has climbed to an unprecedented level of more than $3 trillion, according to Standard & Poor's, sparking warnings from officials including Robert Kaplan, president of the Federal Reserve Bank of Dallas. The concern is that if the economy falters, loan losses would climb dramatically and other companies would be more likely to default on their outstanding bonds.

https://www.thestreet.com/markets/as-recession-warnings-flash-top-officials-meet-in-secret-over-junk-loan-frenzy-14977371

[bucolic_frolic]

8. I'd worry but I don't know what to worry about

Is it like 2008 when money market funds lacked liquidity? Since then some or many are not pegged to a fixed price per share. THAT will shock the public.

There is every variety of hybrid ETF and index ETF. In a crisis they will ... ... who knows? Some fear mass liquidation.

Companies can't find growth. That's garden variety recession.

In the Great Recession period, 2006-2015, there were early on gurus who wrote pieces under pseudonyms, as well as financial journalists. They would scream, "The Fed is creating distortions in the economy!" And drop the subject. Never explain. A couple of years ago one of them spilled the beans about overcapacity which is the wide-ranging concept that explains it all. But they can't tell the public. It's Marx's accumulation and crisis under another term.

Think about it this way. In the 1970s, goods were scarce and cost a lot, while interest rates were high. Now it's the opposite. Say what you want about supply-side economics, which failed every test but one: scarcity. We do have more supply, but soon will have no demand. Demand-dearth economics.

Forewarned is forearmed people. Think. About your situation, whatever it may be. Prepare. It's coming.

[BumRushDaShow]

10. During the '70s & '80s I remember a term thrown around

"stagflation".

And it's possible (or better, probable) given the trade war with China (and others), that the cost of purchasing those previously "cheap" imported goods will eventually start rising while the economy is weighed down by all the corporate debt (much of which I expect is also happening in the real estate market, with the flippers back in business and the builders back to building McMansions and $1 million condos and then flipping those).

[roamer65]

25. This crisis is deeper.

It’s being brought about by the markets inability or lack of desire to purchase about 300 billion worth of added US treasury paper...via our increased deficits.

So...the Feds solution is to go into the markets and buy it themselves. Literally converting it into cash. It’s the kind of stuff that has brought countries like Zimbabwe and Argentina to their knees.

[bucolic_frolic]

26. Yeah, I could see where that would rattle their heads a little

and the Fed has no current choice but to accommodate because of Trump's jawboning. We're printing money faster than anyone wants it or can absorb it.

Gold has liftoff already

[roamer65]

27. In the absence of sound fiscal policy, the Fed has no choice but to print.

When it becomes a choice between an inflationary depression or a deflationary one, the Fed will choose the inflationary.

[ScratchCat]

2. Yeh, they don't see a recession on the horizon

Right.

A strong economy does not need rates this low. They are completely screwing everyone who has savings and other investments which depend upon higher borrowing rates.

Its very clear the stupid tax cut couldn't sustain anything other than a small blip and we are looking at a decent recession if not a crash now.

[Yonnie3]

7. Indeed

Reward speculators.
Reward excessive leverage.
Screw savers and risk adverse investors.

The old growth will fix it bull crap which is nothing but a grand pyramid scheme.

Edit to add. They will have nothing left in their tool kit when things go south.

[roamer65]

3. Negative interest rates by Election Day, 2020.

[IronLionZion]

6. The economy is so strong it needs the Fed to stimulate it?

Tax cuts, Fed rate cuts, tariffs and trade wars, draconian immigration policies, what else do they need to prop up Trump's economy?

Any economy that needs repeated stimulus to prop it up is probably in trouble no matter what they say.

[benld74]

9. MORE friggin radio commercials on refinancing your mortgage

GAWD I truly despise those things

[itcfish]

11. Isnt this manipulating the

economy? I don't know much about this, but it seems this whole thing just might blow up. Who benefits the most in these cuts?

[BumRushDaShow]

14. I suppose that is sortof the Federal Reserve's job

At least in terms of being a resource for the nation's banks, controlling the ebb and flow of the nation's money, and operating as a regulated way for banks to "have a bank" (including holding the contents of the U.S. Treasury), on behalf of the federal government.

From back to the time of Alexander Hamilton, there has always been the battle between whether to have a government-owned and controlled "central bank" or having a more decentralized setup like the Federal Reserve (with a consortium that operates somewhat independently of the government but that includes Governors who are appointed by the federal government).

[OnlinePoker]

12. The Fed is a pusher and the economy is a junkie

The Fed keeps cutting its product so much that, eventually, it will give no stimulus at all. At that point, the economy will start going into major withdrawals.

[RandiFan1290]

13. They need to prop up his tax cuts to the wealthy and corporations. nt

[Yavin4]

15. UGGGHHH!!!!! There's goes my interest on my savings!!!

Savers are always sacrificed for Wall Street.

[D_Master81]

16. Gonna be honest I don't get it

Not an economist but we were always told interest rates couldn’t be increased because the economy was still recovering from the recession. Well clearly that’s not an issue anymore. How could the economy not be good with billions of stimulus pumped into the economy years ago and historically low interest rates? Like others have said savers are getting screwed. My wife’s dad pulled $40k out of savings to put it in something that would get more than $400 a year in interest.

[BumRushDaShow]

17. "clearly that's not an issue anymore"

But then that is the conundrum the lay public has to deal with with respect to what they say is going on and what is REALLY going on.

[Yavin4]

18. This move is to prop up stock prices.

Your father-in-law's transfer out of savings into riskier investments is exactly what the Fed wants to happen.

[CountAllVotes]

19. +1

[roamer65]

28. Correct.

Negative interest rates are the final attempt to drive cash out of savings and into the economy. If they don’t work, we are screwed.

Mixed success in Europe and Japan with them.

[roamer65]

24. Each recession does permanent damage to an economy, leaving less to resuscitate.

Eventually loose monetary policy will not be able to bring it back at all. Negative interest rates will be the 2 minute warning.

[flaval]

20. During the last recession they they said the economy was fine.

I read this article yesterday and pissed me off. https://wallstreetonparade.com/2019/10/fed-ups-its-wall-street-bailout-to-690-billion-a-week-as-media-snoozes/ What happened to the Dodd Frank bill to prevent this. I wrote my rep yesterday to tell her they should not bail them out. I am sick of to big to fail. They write the laws but do nothing to prevent this. They keep lowering the interest rates, what are they going to do when it crashes. I agree with the person who said negative interest, here we come. I think they are already doing that in Europe. How is that sustainable?

[BumRushDaShow]

22. "What happened to the Dodd Frank bill to prevent this"

When we lost the Senate in 2014, the GOP immediately started chipping away at Dodd-Frank (or at least trying to) and when Drumpf was elected, the first 2 years leading up to this last 2018 election, they continued to weaken it further (along with some Democrats).

But remember, whoever controls the WH controls the agencies that would enforce the law and we don't control the WH.

[Maxheader]

21. Who wants to buy americun product

with a tariff on it? Households with higher expenses due to the trade war?

[Eugene]

23. Trump says Fed hurting U.S. competitiveness, needs to cut rates more

Source: Reuters

BUSINESS NEWS OCTOBER 31, 2019 / 10:52 AM / UPDATED AN HOUR AGO

Trump says Fed hurting U.S. competitiveness, needs to cut rates more

WASHINGTON (Reuters) - U.S. President Donald Trump on Thursday launched a broadside against the Federal Reserve and its chairman, Jerome Powell, saying the central bank’s policies were hurting U.S. competitiveness.

“The Fed puts us at a competitive disadvantage. China is not our problem, the Federal Reserve is,” Trump said on Twitter, adding that interest rates in the United States should be lower than those in Germany, Japan “and all others.”

The U.S. central bank on Wednesday cut interest rates for the third time this year to help sustain U.S. growth despite a slowdown in other parts of the world, but signaled there would be no further reductions unless the economy takes a turn for the worse.

Its key overnight lending rate now stands in a target range of between 1.50% and 1.75%.

One of the main reasons for the Fed’s decision to cut rates this year has been as insurance against the risks to the economy from the Trump administration’s almost 16-month long trade war with China, which has hurt manufacturing and caused a drop in business investment.

-snip-

Read more: https://www.reuters.com/article/us-usa-trump-fed/trump-says-fed-hurting-u-s-competitiveness-needs-to-cut-rates-more-idUSKBN1XA219