Trump is about to get a reduction in his interest rate



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There is a new Trump-o-meter in town, but our weekly discussion on Trumponomics revolves around a familiar theme: the possible economic damage caused by President Trump's trade policies.

In his testimony before Congress, Federal Reserve Chairman Jerome Powell said the central bank would be almost certain to cut interest rates later this month. "Uncertainties surrounding trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook," Powell said. In recent weeks, he said, the case for reducing rates has "strengthened." It's about as declarative as a Fed president, and that means interest rates will go down.

Trump should be jubilant. For months, he has been encouraging the Fed to cut rates, violating the protocol by exerting political pressure on the head of the central bank. Trump assumes that lower rates will boost economic growth by making borrowing cheaper. This could help Trump's reelection effort. Powell insists that the economic case is for price cuts and not just meeting Trump's expectations. Most investors believe it.

Inventories hit new records on Powell's dovish outlook. But something is wrong. The Fed will probably lower its rates because it is worried about the economy. This is bad news, not good. And part of the reason for the rate cut is to counteract the negative effects of the president's policy. This is the world of bizzaro, which is why this week's Trump-o-meter shows WEAK, the third lowest note.

Source: Yahoo Finance
Source: Yahoo Finance

Although the trade truce with China is ongoing, the developments are disturbing. Trump complains that China does not yet increase purchases of US agricultural products as promised. China recently announced that it would impose sanctions on US defense contractors selling arms to Taiwan, which would be a first. At the same time, tariffs imposed by both countries are hurting US farmers and increasing costs for businesses. Powell calls trade tensions "cross-tensions" and says they are beginning to drain business confidence and have a negative impact on economic data.

The rate cuts and other measures taken by the central banks helped the stocks to recover as a result of the recession that ended in 2009. But that happened when the economy was coming out of the economy. 39, a recession. The situation is different when the economy is heading for a recession. The last time the Fed stopped raising rates instead of lowering them, it was in September 2007. The S & P 500 stock index hit a record one month later, before sinking into a deep depression. It has not returned to 2007 levels before 2013.

A recession does not seem imminent at the moment, which is why economists say the Fed's rate cuts would now be an insurance policy or a boost. But if the economy needs a boost, it's a bad time for Trump to trade insecure. If Jerome Powell is worried, maybe we should be too.

Rick Newman is the author of four books, including "Rebounders: How the winners go from one setback to the next. "Follow him on Twitter: @rickjnewman

Confidential advice line: [email protected]. Encrypted communication available. Click here to Receive Rick's stories by email.

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