THERE WAS NO NEED FOR A RATE CUT – By Todd Horwitz, Bubba Trading.

 


On Wednesday, Federal Reserve Chairman Jerome Powell announced that The Fed had decided to cut interest rates by 25 basis points. The market was expecting 50 basis points and immediately sold off. In fact, the S&P- 500 had its first breakout move above or below 1% in thirty-eight trading sessions. After the shock, the market recovered somewhat as the S & P closed down almost 1.3% On Thursday after opening lower, equities rallied substantially when traders looked for further considerations but eventually, they threw in the towel and closed lower. The Vix had its biggest rally in three months and it looks like we could be in for some price movement over the next few weeks. But my question still remains why did the FED cut rates?

The Fed maintains that it was for a preemptive strike to cushion the economy from a global slowdown and continuing trade tensions. Chairman Powell didn’t rule out further cuts but emphasized that this should not be the first of a series of cuts. That would only happen if he saw some economic weakness. Instead he said that the cut was only a mid-cycle adjustment. President Trump immediately blasted the move as being “weak” and needed to be extended. The market had apparently anticipated a 50-point cut, and when that didn’t happen, it sold off. A lot of that was knee jerk and it will take several sessions to see if we are headed down from here.

But what about the people that believe as I do that there was no need for a cut. Two of the board of governors, Eric Rosengren and Esther George felt there was no need to cut rates during an economic boom. Low unemployment and a marginal inflation rate were sighted on their side of the story. In addition, QE is far from wrapped up. Of the $4.8 Trillion that was invested in bonds only $8.3 billion have been retired, far from the amount that was to be retired by now. What happens if another recession hits (and it will). Are we going t go to negative interest rates to stimulate the economy? This strategy has proven less than successful in the ECU and Japan. My take is that this has been a bad cut, and I think time will show that I am right!

Todd “Bubba” Horwitz

Financial Markets and Political Commentary
 

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About the author

Todd Horwitz - Author of “Average Joe Options“. Todd began his trading career in 1980 at the CBOE. He was one of the original traders in the OEX & helped start the SPX. He is a member the CME where he trades S&P futures as well as foreign currencies & is a regular contributor to CNBC, Bloomberg, BNN, Fox & many other major news networks.