ref :- All the post-Fed round-ups
"Semantics : the branch of linguistics concerned with the meaning of words" , The OED
Just a quickie today, and to absolutely no one's surprise the US Federal Reserve cut rates by 25 basis points to a band of 1.50 - 1.75% yesterday. It was also fairly widely (though certainly not universally) expected that they would signal that they would now take a breather from further rate cuts for the time being just to take stock. Again , they conformed to the majority expectation .... but of course central bankers don't like to speak in absolutes unless they absolutely have to and market-watchers have to glean their intentions from the language used in Fed statements.
The Fed said that it would "assess the appropriate path" for rates, whereas in the past it said it would "act as appropriate to sustain the expansion". Can you see the difference ? It's possibly more accurate to ask if you can feel the difference, the change in meaning being as much as anything a matter of nuance. Anyway, on this occasion, it has been taken to mean that the "mid-cycle adjustment" in rates that the Fed had been talking about has run its course for now at least. These days, reading between the lines to interpret Fed intentions is as important as knowing what to do once you've got the message (the correct one, one hopes).
Referring to a pause in rate-cutting, President Trump immediately ranted that the Fed "didn't have a clue !" -- nothing yesterday was more predictable than that -- but as the effectiveness and desirability of ever-easier monetary policy comes under increasing global scrutiny, it's clear than the Fed's cautious approach to further rate cuts reflect the view of a majority of the board members. Quite a few of them might also be thinking that they need to keep their powder dry for a while in case things deteriorate and they need some monetary policy ammunition in the future.
As well they might ...... 3rd Quarter GDP data was released yesterday, and again you had to be careful about what they were telling you. Growth continued to slow to its lowest point so far this year, but in fact, was generally marginally stronger than expected -- or at least not as weak. Annualised GDP growth came in at 1.9% against a forecast of 1.6%. Personal Consumption, a key reading given how much consumers drive the economy, measured + 2.9% (expected +2.6%). Not bad then, but the far less welcome kicker was that Business (non-residential) Investment fell by 3%, down from -1% in Q2. This was the worst number for corporate capital expenditure for almost 4 years, and was widely described as "awful".
Sharp falls in Capex are manifestations of a lack of sufficient confidence in the future for companies to invest in their own infrastructure, with obvious implications for future growth. We can throw in other causes behind the current fall in confidence, Brexit for example, but obviously by far the most important factor undermining the global economy and expectations for the future is trade conflict, and particularly the US-China trade war.
Some progress towards signing an initial agreement between the pair had been encouraging some optimism, but this morning Chinese officials seem to be intimating that even if "phase one" is signed off, there are plenty of red lines that they are not prepared to cross in spite of US demands. They also hinted that President Trump's volatile and capricious nature means that the US cannot be trusted not to do about-turns on any agreements anyway.
It would seem that optimism reading the trade war may be premature and one can't help wondering if, despite the apparent basic merit (partial or otherwise) of many of the US positions, the negotiating tactics favoured by the President is making a swift resolution to this massive issue less, rather than more, likely.
In that light, keeping a little ammo up your sleeve (even if there's not much of it) seems eminently sensible.....