It is becoming more and more likely that the Fed are going to cut rates this month, as Chairman of the Federal Reserve, Jerome Powell, said that the US China trade war has caused firms to stockpile, while not particularly restraining growth.
Powell used the word insurance with regards to a rate cut to make sure that growth and inflation were not pushed lower in the future.
“Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. outlook,” Powell said.
Essentially, lower rates could cushion the impact of the current trade war which is having an impact on business investment, according to previous Fed minutes.
The importance was placed on weakening global data surrounding growth which is likely to have a material impact on US data.
What’s more, is that even though unemployment is at record lows, we are not seeing a follow through in inflation as the Philips Curve should suggest.
This adds to the Fed’s reasoning for cutting rates.
He was questioned by Ocasio-Cortez on this relationship, and replied with the link having degraded, “to the point where it’s a faint heartbeat.”
It seems as if the Fed are more concerned with what hiring and purchasing managers are going to be doing going forward than anything else, which is what is making a rate cut most viable.