Equities and Rates Both Fall on Eve of Fed Decision

 

President Trump calls for “large” interest rate cut a day before Fed rate decision. Trump has long been critical of the central bank, and his comments today were the latest in his public statements encouraging a large rate cut from the Federal Reserve. While the Fed has publicly affirmed their political independence on numerous occasions, there’s little doubt that the President’s two presumptive Fed nominees, Judy Shelton and Christopher Waller, share his dovish views. The Powell Fed is relatively evenly split between monetary hawks and doves but will be noticeably transformed by the end of 2020 when President Trump will have appointed three of the seven governors.

 

 

Treasurys climb, yields and swap rates fall. Treasury yields fell marginally across the curve by a half to a full basis point, and swap rates followed suit. On the eve of the FOMC rate decision, Fed Funds futures are implying an 82% likelihood of a 25 bp rate cut and an 18% likelihood of a 50 bp cut. Today’s personal spending and income data did little to convince markets otherwise as the PCE Deflator (the Fed’s preferred measure of inflation) showed prices increasing by 1.4% on an annualized basis–still well below the Fed’s 2% target.

 

 

President Trump bashes China as two nations resume trade negotiations. President Trump tweeted that China continues to “rip off” the U.S. and is not honoring its commitment to buy U.S. agricultural products. Trump added later in comments to the media that the U.S. has “all the cards” and suggested that China is attempting to wait until the end of 2020 so it can negotiate with a Trump successor should the president lose his bid for re-election. The saber-rattling sent equities lower on the day with the S&P 500 and Dow Jones Industrial Average closing down 0.26% and 0.09% respectively.