DealBook Briefing: A Rate Cut Now Looks All but Certain

Good Thursday. (Want this by email? Sign up here.)

The only way is down for the Fed

Jay Powell, the Fed chairman, strongly signaled yesterday that the Fed could cut interest rates when it meets later this month, Jeanna Smialek and Matt Phillips of the NYT write.

• The Fed expects unemployment to stay low and inflation to gradually rise, Mr. Powell told the House Financial Services Committee.

• But he added that “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”

Investors saw the comments as a virtual guarantee of rate cuts. Stocks leapt yesterday, with the S&P 500 briefly trading above 3,000 for the first time. The index is up nearly 20 percent this year and is enjoying one of the longest bull markets on record.

“That the Fed is considering a rate cut at a moment when the United States economy is strong and job market gains are solid underscores Mr. Powell and his colleagues’ concern about the future of a record economic expansion,” Ms. Smialek and Mr. Phillips write.

Can’t square a looming recession with surging stock prices? Let Mr. Phillips explain:

• Rate cuts “lower the returns on new investments in bonds, the main alternative to stocks for many investors. That makes stocks look more attractive to investors.”

• “A rate cut also makes it cheaper for consumers and companies to borrow, and that can buck up economic activity and help corporate profits.”

There’s one big uncertainty: how far cuts may have to go. Mr. Powell is “knee-deep into the relatively uncharted waters

Keep reading this article on The New York Times Business.

Leave a Reply