Important Financial Weeks Ahead:
1. Trump to launch his 2020 Campaign today, June 18th 2019.
2. Fed Meeting tomorrow on whether to cut Interest rate or not, tomorrow, June 19th 2019.
3. G-20 Meeting in Japan next week and a possible meeting between Trump and Xi to discuss Trade Deal.
US Federal Interest rate was as high as 5.25% in August 17, 2007. We had a 2007-2008 Financial crisis and it got reduced to 0 by December 16, 2008 (almost 11 rate cuts in less than 18 months) to save the economy.
US Fed cut didnt increase until December 16, 2015. From 2016 to 2018, in 3 years, Fed increased interest rate 10 times to 2.5%.
Last december rate hike, caused Stock Market to go down 20% from its recent high and it seems like it was a mistake from Fed (to increase rate 4 times in a year).
After December, Jerome Powell - Fed Chair - has indicated to remain "Patient" before further hikes. In the first quarter, there was an expectation that, Fed will increase rate once this year.
In last meeting though, Powell has indicated that they do not see any further rate hike this year. Meanwhile, Globally, majority of countries are doing the Fed Cut, including Australia, New Zealand, Europe, India, China, Japan etc. Also, some of the countries, including Europe, are indicating Quantitative Easing (meaning printing more money and putting it in the market). This has put pressure on Jerome Powell to cut Fed Rate.
So, Why should Jerome Powell Cut Fed Rate?
1. Rest of the World is doing it. (Why Rest of the world is doing it? -> Because, Global economy is slowing, and hence they want to pump more money).
2. Trump is forcing him to do it.
Why?
Trump is launching his 2020 Re-election campaign, and wants Economy to be booming. Why? Because only twice an incumbent president has lost the election and both times, Economy was the reason (Carter and George Bush Sn). So Good economy almost gives him a victory. Stock market from January 2018 to now, has went nowhere and if Fed doesn't cut the rate, we may see market goes back to where it was in 2016 before 2016 election happened and that would be horrible news for Trump for his re-election. Plus, Trump is doing trade negotiations with China and having Fed on his side, with rate cuts, gives him more flexibility to whether to do the trade deal or not.
So, What is Jerome Powell going to do tomorrow?
1. If he does NOT cut the rate tomorrow
and Trump does not do the trade deal with china, stock market will go down 10-20% and after that any rate cut will not be as effective.
What does stock market expects Jerome Powell to do tomorrow?
1. Do the Rate Cut.
2. Indicate that there is at least one more Rate cut coming this year, if not two.
However, Stock market will go up another 10% at least this year, if Fed does Rate cut tomorrow (or at least indicate that 3 more rate cuts are coming this year in July, September and December) and Trump does the trade deal with China.
1. Trump to launch his 2020 Campaign today, June 18th 2019.
2. Fed Meeting tomorrow on whether to cut Interest rate or not, tomorrow, June 19th 2019.
3. G-20 Meeting in Japan next week and a possible meeting between Trump and Xi to discuss Trade Deal.
US Federal Interest rate was as high as 5.25% in August 17, 2007. We had a 2007-2008 Financial crisis and it got reduced to 0 by December 16, 2008 (almost 11 rate cuts in less than 18 months) to save the economy.
US Fed cut didnt increase until December 16, 2015. From 2016 to 2018, in 3 years, Fed increased interest rate 10 times to 2.5%.
Last december rate hike, caused Stock Market to go down 20% from its recent high and it seems like it was a mistake from Fed (to increase rate 4 times in a year).
After December, Jerome Powell - Fed Chair - has indicated to remain "Patient" before further hikes. In the first quarter, there was an expectation that, Fed will increase rate once this year.
In last meeting though, Powell has indicated that they do not see any further rate hike this year. Meanwhile, Globally, majority of countries are doing the Fed Cut, including Australia, New Zealand, Europe, India, China, Japan etc. Also, some of the countries, including Europe, are indicating Quantitative Easing (meaning printing more money and putting it in the market). This has put pressure on Jerome Powell to cut Fed Rate.
So, Why should Jerome Powell Cut Fed Rate?
1. Rest of the World is doing it. (Why Rest of the world is doing it? -> Because, Global economy is slowing, and hence they want to pump more money).
2. Trump is forcing him to do it.
Why?
Trump is launching his 2020 Re-election campaign, and wants Economy to be booming. Why? Because only twice an incumbent president has lost the election and both times, Economy was the reason (Carter and George Bush Sn). So Good economy almost gives him a victory. Stock market from January 2018 to now, has went nowhere and if Fed doesn't cut the rate, we may see market goes back to where it was in 2016 before 2016 election happened and that would be horrible news for Trump for his re-election. Plus, Trump is doing trade negotiations with China and having Fed on his side, with rate cuts, gives him more flexibility to whether to do the trade deal or not.
So, What is Jerome Powell going to do tomorrow?
1. If he does NOT cut the rate tomorrow
and Trump does not do the trade deal with china, stock market will go down 10-20% and after that any rate cut will not be as effective.
What does stock market expects Jerome Powell to do tomorrow?
1. Do the Rate Cut.
2. Indicate that there is at least one more Rate cut coming this year, if not two.
However, Stock market will go up another 10% at least this year, if Fed does Rate cut tomorrow (or at least indicate that 3 more rate cuts are coming this year in July, September and December) and Trump does the trade deal with China.
