What are the reasons why the Fed would reduce the rate in the United States?

Preventive reduction may be enough to reduce the risk of a recession, which has increased due to the government's trade war Donald Trump with China and a slowdown in economies in Europe, Asia and Latin America.

However, recent data from the US economy show many signs of recession.

Low inflation

Consumer prices in the United States rose 1.5% in the 12 months to May, the same rate as since the Great Recession that ended in June 2009.

The Federal Reserve wants 2% inflation and the small price increases have become a feature that has defined what is already the largest economic expansion in the United States. Inflationary pressures were stronger in 1995, 1998 and 2007.

Manufacturing concern

The US manufacturing industry, which accounts for about one-tenth of the economy, is the sector that bears the brunt of the global slowdown. The recent slowdown echoes the trend seen earlier in the rate reduction cycles that began in 1995 and 1998.

Even though the so-called advanced indicators are grouped together, especially in the labor market, factory shipments and interest rate differentials, the US economy is not showing much signs of an impending recession.

Strength of the labor market

In the weekly reports, many economists examine new claims for unemployment benefits, indicating that the US economy is in recession. Along with other labor market indicators, US unemployment claims are currently not a reason for vigilance, but they have not been there either. recent rate reduction cycles. Orders increased only substantially before the 1995 rate cuts.

Stock index Standard & Poor's 500 fell sharply before the rate reduction cycles that began in 1998, 2000 and 2007. The recession has hit the last two cycles. Recently, the stock market has increased, as in 1995.

Trump criticized the Fed for "doing nothing" in monetary policy

The president of the United States, Donald Trump, again criticized the Federal Reserve (Fed) for its monetary policy decisions, before the agency announces whether interest rates fall or remain unchanged.

In a message posted on his Twitter account, Trump stressed that the European Union and China "will continue to lower interest rates and inject money into their systems, which will facilitate for their manufacturers selling their products ".

"In the meantime, and with very low inflation, our Fed is doing nothing and will probably do very little in comparison," he added.