Inflation Expectations Fell in April, Diminishing Risk of Tariff-Led Price Hikes

Cornelia Mascio
Mag 16, 2019

Monetary policymakers around the world should review their strategies to prepare for a future of slow economic growth and low interest rates, US Federal Reserve (Fed) Bank of NY president John Williams (picture) said.

He expected the 10-year to remain at the low end of a 2.40%-2.70% range while the negotiations play out, but tumbling close to 2% "if things don't work out and people feel the impact of higher tariffs".

The risk of a broader or more protracted trade battle could push the market back to the darker days of the fourth quarter previous year, when trade tension helped drive the S&P 500 Index toward its weakest levels of 2018, she said.

"Central banks should revisit and reassess their policy frameworks, strategies and toolkits to maximise efficacy" in a world where low investment and high savings put a lid on interest rates, Williams said yesterday in remarks prepared for a panel discussion in Zurich.

Along with the heat he has placed on China, Trump has leaned hard on the Fed to cut its benchmark interest rate.

"The Fed statement had a more upbeat view of the market, stating that" economic activity rose at a solid pace". In March, the Fed stated that it seemed growth had slowed from the fourth quarter.

Investors will closely parse the Fed's statement, which is due out after Wednesday afternoon, particularly some other references to the Fed believes the economy is now doing.

Yields on benchmark 2- and 10-year notes have dropped to 2.27% and 2.47%, respectively, - and that's even before the market has had the chance to react to the very latest weekend rhetoric. Investors had feared that the Fed would revolutionize the market if it lasted increasing borrowing costs.

Following a report on the industry came in weaker than analysts anticipated bond prices rose. By making it cheaper to borrow money, low prices tend to aid stock markets and the market.

Stocks to the Dow and the S&P 500 are equally up 0.4 percent.

The indicators that are open for trading in Europe, where all of the area is closed for a holiday, are also up slightly, with Britain's FTSE 100 up 0.1%.

Steeper equity-market declines could weigh on yields, as the Federal Reserve under chairman Jerome Powell has already proven its readiness to tilt dovish when market conditions are strained.

Trump has repeatedly criticized the central bank, urging it to deliver a drastic rate cut and resume bond purchases in an April 30 tweet. Low rates have a tendency to help stock the market. That which the mainstream economist is now advocating: interest rate reductions have been called for by president Donald Trump. "If the Federal Reserve ever did a 'match, ' it would be game over, we win!"

The Fed will reiterate a message which has reassured investors and consumers because the start of the season: No rate hikes will likely soon.

After several years of slow interest rate hikes, the Fed has kept borrowing costs steady this year, in part because of cooled consumer prices. And with inflation tame, the Fed has been seen as able to stay at least through this season.

Yet Trump insists that the market can do much better, and to this end he's demanding what virtually no mainstream economist would prefer: Cutting on prices.

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