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Friday, September 6, 2019

Will the US Fed reduce its interest rates in September 2019?

We got it right when we predicted a US FED rate cut in July by analyzing the 4 important rates in US.

Let's do it again to see what will happen in September 2019.

Iorr: 2.10% (Falling), Max is 2.25% as set by the FED.

Effr: 2.13% (Falling)

Ioer: 2.10% (Falling)

On RRP: 2%

The official US interest rates set by the FED range from 2% to 2.25% currently.

Effr: 2.13% (Loan rate offered by FED to US bank)
Ioer: 2.10% (Deposit rate offered by FED to US bank for the excess fund)

The spread between Effr and Ioer denotes the monetary supply condition in the US banking system.  In other words, the lesser the spread, the looser the monetary supply and vice versa.  A shrinking spread describes an easing while a widening spread describes a tightening condition.  This spread has not widened which means that there is no monetary tightening in the US.  However, the 10-year treasury yield (risk-free rate) is only around 1.5% currently which is below the Ioer (2.1%).  Thus, the US FED has to cut its rates to make the Ioer less attractive to the banks in order to stimulate the economy.

Please read the post below to understand the 4 interest rates better.

The falling rates are signaling that the US FED is likely to cut rates again for it to stay relevant.  Furthermore, the US FED is being held hostage by Trump and wall street to cut rates now.  Therefore, the US Fed has no choice now, especially the PMI is weakening.

If the US Fed dares to defy Trump and Wall Street, the stock markets will crash.  I don't see the US Fed having the guts or gumption to fight for its independence and risk crashing the stock markets by putting the rates on hold.


Unknown said...

Fed listens to the market.

And right now the market is 91.2% expecting 25 basis point cut on 18 Sep.

Likely another 25 bp cut on 30 Oct.

Eric Ho said...

Look like we share the same conclusion this time.

Eric Ho said...

I don't trust the market expectation of 91.2% because they can be wrong. I rather do a fundamental analysis to reach my own conclusion.

As you can see, many analysts cannot analyze properly at all. Many analysts were wrong when they concluded China would cut its interest rates after the US Fed's reduction. Please read below.

Many analysts also predicted that China would sell its US treasuries to punish the US and they were wrong again. Please read below.