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Tuesday, April 30, 2019

Will the US Fed cut the interest rate in May 2019?

https://finance.yahoo.com/news/fed-may-end-seeing-1995-190000337.html

Some people are hoping and predicting a fed rate cut in May 2019 but I don't share the same sentiment as them because the EFFR has been rising to 2.44% now.

http://sg-stock.blogspot.com/2019/04/whats-happening-to-usd-now-why-is-it.html

When the EFFR(2.44%) is greater than IOER(2.4%), it becomes a monetary tightening situation because the excess funds are moving into EFFR which are usually used to invest in treasuries.  Therefore, there is lesser money available in commercial markets like mortgage and commercial loans.  This is the rationale behind the rise in USD as the money supply is shrinking.

If the US Fed were to cut the interest rate, it would cause the USD to depreciate and that would contradict the rise in EFFR which was causing the rise in USD.  By cutting the rate now will send a bewildering signal to the market and also highlighting the contradictory stances between the US Fed and Trump.  This will also send a signal that Trump has intervened in the independent Fed again which is bad for the US economy.

3 comments:

Eric Ho said...

Cutting rate will only show that the US economy is in a dire strait.

Eric Ho said...

https://finance.yahoo.com/news/trump-calls-for-a-fed-rate-cut-while-praising-chinas-great-stimulus-180933300.html

Trump is calling on fed to cut the rate again!

Eric Ho said...

The US FED resisted Trump's call and didn't cut the rate.

Well done!