FLASH: 2 prominent Fed watchers said they now expect the central bank to cut interest rates this year as policy makers react to a darkening economic outlook.
JPMorgan Chase & Co. (NYSE:JPM) chief US economist Michael Feroli and former Fed Governor Laurence Meyer both said the Fed will act to bolster an economy that is being buffeted by trade tensions and other headwinds.
“Even if a deal is quickly reached with Mexico, which seems plausible, the damage to business confidence could be lasting, with consequences that might still require a Fed response,’’ Mr. Feroli said in a note to clients Friday. “Accordingly, we now look for two 25 basis point reductions in the federal funds rate target, in September and December.’’
President Trump said late Thursday that the U.S. would put 5% duties on all Mexican imports on 10 June, rising in increments to 25% in October, unless Mexico halts “illegal migrants.”
US stocks fell on the news and investors increased bets that the Fed would ease policy this year.
Mr. Feroli said the Fed “may well need to cut by much more than 50 basis points’’ if the tariffs on Mexico are raised to 25%.
Mr. Meyer, in a note to clients Thursday before President Trump’s tariff announcement, predicted the Fed would reduce rates this year.
“We do not think the sky is falling,” saidMr. Meyer, who heads Monetary Policy Analytics in Washington. “Rather, we think that by September the argument will prevail that, after a long period of patience, a 25-basis-point rate cut would represent a prudent re-calibration of monetary policy.”
Mr. Meyer listed a sharper-than-expected slowdown in growth, tighter financial conditions, and weak core inflation as reasons why the Fed will “soon become impatient.”
Fed Vice Chairman Richard Clarida said Thursday, before President Trump’s announcement, that the central bank would be prepared to ease policy if it saw mounting risks to the US economic expansion.
Friday, the major US stock market indexes finished at: DJIA -354.84 at 24815.04, NAS Comp -114.57 at 7453.12, S&P 500 -36.80 at 2752.06
Volume: Trade on the NYSE came in at 988-M/shares exchanged
- NAS +12.3% YTD
- S&P 500 +9.8% YTD
- Russell 2000 +8.7% YTD
- DJIA +6.4% YTD
HeffX-LTN’s overall technical outlook for the major US stock market indexes is Neutral to Bearish for the month ending 31 May 2019
Have a terrific weekend