INSIGHTS
JUL
29
COSTA’S CORNER
“Will it go round in circles, will it fly high like a bird up in the sky
Will it go round in circles, will it fly high like a bird up in the sky”
Thanks to Billy Preston for this mornings’ lyrics. The World does go around in circles and with that, so does the economy.
This week the Fed is meeting and will decide about the direction of interest rates for the short term. The expectation, as everyone knows, is that they will cut the Fed rate by 25 basis points. Not really a surprise if they do and I don’t think it will have all that much impact on the markets or the economy in general.
This will be the first rate cut since the financial crisis in 2008.
What it does signal however, is that the Fed is keenly aware of a slowing of the economy and last weeks GDP number confirmed it. A rate cut is meant to stimulate a morose economy by making it cheaper for companies to borrow and use that money for expansion, hiring and R and D.
I don’t believe that any number of rate cuts will stimulate the economy long term simply because the life cycle of this expansion is close to done with and no influx of looser cash will help. I don’t see a hard recession anytime soon but we will probably have an extended period of very slow growth and this may carry on through 2020.
Some people have asked me over the last few months if I felt that the Fed was reacting to President Trumps prodding and I can honestly say “No”, I don’t think the Fed looks at life politically and I firmly believe they do things with one thing in mind, what is in the best interests of the US economy and how does it relate to the Global economy. You get a Fed that can be bullied and it’s all over because there is not one president living or dead that truly understands economics like the Governors of the Federal Reserve.
I have also said on many occasions that the Fed is a little out of touch with the realities of the US Economy and that they should have some sort of advisory board of small businessmen and women that they can call on for a better pulse on the economy. Charts and statistical findings are great but what is the average business doing? To me, it makes sense.
We wait and see if this rate cut is the continuation of the circle we live in.
I expect the reaction will be muted on Wednesday and I will remain muted too.
50% Stocks
25% Fixed Income
25% Cash
Will it go round in circles, will it fly high like a bird up in the sky”
Thanks to Billy Preston for this mornings’ lyrics. The World does go around in circles and with that, so does the economy.
This week the Fed is meeting and will decide about the direction of interest rates for the short term. The expectation, as everyone knows, is that they will cut the Fed rate by 25 basis points. Not really a surprise if they do and I don’t think it will have all that much impact on the markets or the economy in general.
This will be the first rate cut since the financial crisis in 2008.
What it does signal however, is that the Fed is keenly aware of a slowing of the economy and last weeks GDP number confirmed it. A rate cut is meant to stimulate a morose economy by making it cheaper for companies to borrow and use that money for expansion, hiring and R and D.
I don’t believe that any number of rate cuts will stimulate the economy long term simply because the life cycle of this expansion is close to done with and no influx of looser cash will help. I don’t see a hard recession anytime soon but we will probably have an extended period of very slow growth and this may carry on through 2020.
Some people have asked me over the last few months if I felt that the Fed was reacting to President Trumps prodding and I can honestly say “No”, I don’t think the Fed looks at life politically and I firmly believe they do things with one thing in mind, what is in the best interests of the US economy and how does it relate to the Global economy. You get a Fed that can be bullied and it’s all over because there is not one president living or dead that truly understands economics like the Governors of the Federal Reserve.
I have also said on many occasions that the Fed is a little out of touch with the realities of the US Economy and that they should have some sort of advisory board of small businessmen and women that they can call on for a better pulse on the economy. Charts and statistical findings are great but what is the average business doing? To me, it makes sense.
We wait and see if this rate cut is the continuation of the circle we live in.
I expect the reaction will be muted on Wednesday and I will remain muted too.
50% Stocks
25% Fixed Income
25% Cash