Toshio Matsuda, Samurai Lecturer, Commentator & Intl Economist
(This issue is submitted to a Washington D.C., Seattle, and Zurich think-tank as the English edition of “Straight from Shoulder”.)
"Straight from the shoulder " by Toshio Masuda-Samurai Lecturer
August 08, 2019
( Free of charge to the people I met)ON TIME ALERT
Bulletin issued in August 2019
The truth behind FRB rates policy
There are no reasons for Fed cutting interest rates, other than those artificially created by Trump.
The only argument that Trump puts against his critics is the continuing rise in share prices, in the US and worldwide.
Share prices hinge on the Fed’s policy, since the latter is authorized to increase or decrease the value of US dollar-the international basic key currency.
Without the Fed’s support Trump will have no chance to be re-elected on November 3, 2020.
So how did it look when Mr Powell, the Chairman of Fed, repeatedly ignored Trump’s constant requests to lower the rates, and instead raised them four times in 2018?
Trump was frustrated with Powell and it was believed that he asked the White House staff to search for any legal procedures that would enable him to fire Powell from Fed.
Aware of Trump’s anger and frustration Powell nevertheless announced his intention to raise the rates 2-3 times in the following year (2019).
Yet contrary to that, while speaking on the FOMC sessions in January and in March 2019, Powell announced that the Fed would cut the rates 2-3 times in the coming year.
At the start of 2019 the consumer spending was as low as 1.1%.
In May non-farm payrolls got down to 70,000.
Most analysts talked about the future recession and therefore predicted rate cuts in July.
Rate cuts by Fed looked like being supported by the fundamentals.
But in my opinion those data were just a snapshot, not representing the current state of the US economy and market trends.
The US economy is fairly strong and there should be no fear of recession.
As I predicted, the consumer spending in the US has recovered from 1.1% to reach 4.3%.
Payrolls got back to 164,000.
Hourly earnings rose by 3.2% pa.
Unemployment rate still stands low, at 3.7%.
This good news came before FOMC session held on July 30-31, 2019.
The percentage of analysts speaking in favour of rate cuts got down from 100% before FOMC, to 70% after it, due to proven strong US fundamentals.
Fed’s decision to cut the rates was based on the fear of future recession.
Yet there is no cause for fear, except for one artificially created by Trump.
There are no signs of recession in the US fundamentals.
The Fed’s decision on rate cuts sparked arguments on whether it was right or wrong.
Then Trump dispelled all the doubts and justified Powell’s action by announcing tariffs on $300 billion additional goods imported from China, to be levied at 10% rate, starting from September 1; that pushed markets down amongst fears of recession, while Dow was panicked down from $27,300 to $25,700, thus losing $1,600.
Currently all analysts predict another rate cuts to be announced at the forthcoming FOMC session in September.
For Trump this year’s share prices are of no great interest. What is the most important for him is to ensure that the stock markets are bubbled up all over in lead to November 3,2020-the presidential election day.
Trump has imposed tariffs on imports from China and other countries, from March 2018; it is now clear that these trade wars have not damaged the US GDP, which fell only by 0.1-0.2% at the most, which is practically nothing compared with the overall consumer spending.
The everlasting trade wars instigated by Trump are necessary to justify rate cuts that in the sound and healthy American economy would otherwise not make much sense.
Although there is no particular need to consider the outlook for the US economy, it is essential to look into the shenanigans going on between Trump and Powell, as they will dictate the fate of the markets.
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Written by Toshio Masuda