Face of Nation : As recession fears grow Powell and Poloz have good reasons to keep their powder dry
If you’re a Canadian hoping for a reduction in interest this week to take a little weight off heavy loan payments, you will probably have to hang on a little longer.
Few expect U.S. Federal Reserve chair Jerome Powell to announce interest rate cuts at his monetary policy press conference on Wednesday.
But despite a U.S. economy that’s still growing and North American unemployment that remains at record lows, a lot of people, including U.S. President Donald Trump, have been hoping for interest rate cuts this year. In fact, some market indicators anticipate three quarter-point cuts in 2019. They may be disappointed.
Certainly market analysts of all kinds will be examining Powell’s every nuance hinting when the next cut might be coming.
With signs of trouble brewing in the Gulf of Hormuz — where the U.S. last week blamed Iran for attacks on shipping — and with continuing trade squabbles between the U.S. and three of its biggest trading partners, the economic future is at least as hard to predict as ever and maybe more so.
A survey of economists by the Wall Street Journal showed most are convinced the next rate move by the Fed will be down, not up.
Recently there has been widespread fear the hot U.S. economy is coming off the boil and actually may soon be helping to nudge the world into recession. While much disputed by those who say, “It’s different this time,” inverted yield curve data in Canada and the United States point to growth going negative as soon as 2020.
Cutting interest rates is exactly what central banks do to boost a sagging economy. But there are good reasons to expect that Powell will not cut just to prop up markets or to make Trump happy. When his turn for a rate decision comes in July, it is reasonable to think Bank of Canada governor Stephen Poloz will also be cautious.
If Powell fails to make sharp cuts in interest rates this year, he will be flying in the face of both the president and of futures market predictions. On the other hand he will be acting with the backing of some very powerful market players.
As of Friday, prognostications derived from Fed funds futures market show an 18 per cent chance of a cut this week. But that rises to 83 per cent in July and continues to climb during the year to 98 per cent by December.Another way of examining the futures data seems to predict U.S. rates as low as 1.75 per cent by the end of the year, which implies three quarter-point rate cuts by the Federal Reserve in 2019.
