For now, the Fed made a [rate] cut that doesn’t appear to be particularly effective, says Steve Blitz, Chief US Economist at TS Lombard. The FOMC is essentially left to hoping that easier financial conditions, dating back to early this year, are more than enough support for the economy (which they still feel is on course) to outweigh the negatives from a global slowdown. It is true that a recession doesn’t appear imminent. Further, the markets, and the economy by extension, could very well get a boost in the next month or so if Trump moves to a trade truce--he has apparently gotten the message that these wars need to be set aside, or better yet even reversed, to get the economic lift necessary to carry him to a second term. The risk is that if the global slowdown does now slow the U.S., the Fed will have given away valuable basis points of easing they can ill-afford to waste by proceeding too slowly so far. Therefore, they are, from our perspective, betting big they draw an inside straight. As for the course of Fed policy through year-end, barring any major deterioration or acceleration in the data, this series of 25-basis-point cuts will be interrupted in October for the FOMC to announce the balance-sheet adjustment and explain why this is not a return to QE, even though it is. December looks to be the time for the next rate cut.
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