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Recession Worries Caused Fed to Cut Interest Rate By 25 Basis Points to 1.75 Percent

By Glenford S. Robinson

This past Wednesday, October 30, 2019, at 2PM, New York Time, the U.S. Federal Reserve, as expected, Cut Interest Rates from 2.00% to 1.75%, a 25-basis point cut. The continued poor performance of the economy gave the Federal Reserve no choice, but to cut interest rates again. So, it was no surprise. In fact, the interest rate reduction even match forecast. The forecasted interest rate cut was 1.75% and the actual rate cut decision match forecast at 1.75%. So, the cut was priced in, no surprise to anyone. “Yours truly Glenford Robinson even became a credible psychic on predicting this interest rate cut. Look at last week’s article and video, and you will see my crystal ball spot-on prediction.”

The stock market usually benefits from any reduction in interest rates simply because consumers will now have an easier time getting their credit card applications approved, so they can buy more goods and services provided by companies represented in the stock market. When this happens, companies will have profitable earnings reports, which will cause the stock market to skyrocket. So, if anyone out there is listening, your credit card application that was disapproved six months ago may now be approved if you resubmit it. With a lower interest rate, mortgage rates could follow, giving first-time home buyers an opportunity to own a home.

So, how does the interest rate or the federal funds rate come about? Federal Open Market Committee (FOMC) members vote to decide on the most appropriate value to set the interest rate based on economic health. If economic health is a concern, like it is currently, then FOMC members will vote to lower the Federal Funds Rate to try and jump start the economy.

Traders watch interest rate decisions closely because interest rate changes influence currency valuations. In fact, a higher than expected interest rate decision should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected interest rate decision should be perceived as negative for the U.S. economy and bearish for the USD. Therefore, the current interest rate decision of 1.75% paints a grim picture of the U.S. economy. This is the main reason why the federal reserve stepped in and cut rates, in the first place.

Even consumers don’t feel all that confident about the economy. The recent Conference Board Consumer Confidence Report for October showed that consumers are less confident about the economy now, than they were a month earlier. The CB Consumer Confidence Report released Tuesday, October 29, 2019, at 10 AM, for October, posted current readings of 125.9 missing forecast of 128.0 and a previous reading of 126.3.

The report measures consumer confidence level in economic activity. It functions as a leading economic indicator because it can predict consumer spending, which influences overall economic activity. Higher readings signify higher consumer optimism. Therefore, a higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD. The current reading of 125.9 should be perceived as negative for the U.S. economy and bearish for the USD.

The Initial Jobless Claims Report, released by the Department of Labor, another leading indicator of economic activity, measure changes in the number of people filling out unemployment insurance request for the first time, in the past week. Although the market impact of the Initial Claims Report varies from week to week as a result of its short week-to- week time span, it still paints a vividly grim picture of the U.S. economy.

A higher than forecasted reading should be perceived as negative for the U.S. economy and bearish for the USD, while a lower than forecasted reading should be perceived as positive for the U.S. economy and bullish for the USD. The current Initial Jobless Claims reading released on Thursday, October 31, 2019 at 8:30 AM missed forecast of 215, 000 by posting a disappointing reading of 218,000, well above the previous reading of 213, 000. So, there were more people filling out unemployment applications last week than the previous week. This current disappointing Initial Jobless Claims number along with other economic indicator readings discussed, justify the Federal Reserve recent reduction of the Fed Fund Rate to 1.75%. Up next, the Nonfarm Payroll, a market mover in its own right.

The Bureau of Labor Statistics, Nonfarm Payrolls measure changes in the number of people employed during the previous month, excluding those from the farming industry. Nonfarm Payrolls happens to be the primary indicator of consumer spending, which accounts for the majority of economic activity. A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.

Let’s see how the Nonfarm Payrolls Report for October did. The Nonfarm Payrolls for October, released on November 1, 2019 at 8:30AM, New York Time, beats forecast of 89,000, posting a reading of 128,000, well below a previous reading of 180,000. The lowball forecast got trounced by the current reading, but the previous reading won-out over the current reading, which took us back to where we started. “You said it! Yet, another economic indicator with negative numbers.   

The Gross Domestic Product (GDP), released by the Bureau of Economic Analysis, measures the annualized change in the inflation-adjusted value of all goods and services produced in the economy. The GDP, produced monthly, functions as the primary indicator of economic health, and its readings represent the total measure of economic activity. The GDP consists of 3 versions released a month apart–advance release, second release, and final release. The economic calendar highlights the advance release and the secondary release as preliminary.

A GDP reading greater than forecast should be perceived as positive for the economy and bullish for the USD, while a reading less than forecast should be perceived as negative for the economy and bearish for the USD. The current GDP reading released on Wednesday, October 30, 2019 at 8:30AM beat forecast of 1.6%, with a current reading of 1.9%, slightly below a previous reading of 2.0%. Well, if the GDP number came in less than the previous reading, then that means negative growth, whether or not the current reading beat forecast. Yes, you said it! Yet, another economic indicator showing negative growth. Hopefully, the latest interest rate cut by the Federal Reserve can make a positive difference in coming months. “I have my fingers and toes crossed wishing that my dream come true.” Now comes the unemployment rate for October.

How are we doing? A whopping tenth of a point improvement from last months. Yes, the current Unemployment Rate reading for October released on November 1, 2019 at 8:30AM, New York Time came in at 3.6% matching forecast of 3.6% and beating out a previous reading of 3.5%; Wow! So, close! Hey, a win is a win, no matter how insignificantly close.

We are talking about a 0.1% difference! Whoo Whee! Ok, all fun and joke a side. “The economy is still on life support.” And, the Federal Reserve have come to the rescue, once again! What would we do without the Fed? God Bless the Federal Reserve, for always coming to the rescue, when our economy needs them the most? I know we were on the Gold standard and president Nixon took us off, and put us on the fiat currency standard, the all mighty dollar.  Would we need the Fed if we were on the Bitcoin Standard?

The Bureau of Labor Statistics, Unemployment Rate measures the percent change of the total unemployed workers actively seeking employment during the previous month. A higher than expected reading should be perceived as negative for the U.S. economy and bearish for the USD, while a lower than expected reading should be perceived as positive for the U.S. economy and bullish for the USD.

The Institute of Supply Management (ISM), Manufacturing Purchasing Managers Index (PMI) Report, on Business shows, compiled data, from monthly replies, to questions asked of purchasing, and supply executives, in over 400 industrial companies.  A higher than expected reading should be perceived as positive for the U.S. economy and bullish for the USD, while a lower than expected reading should be perceived as negative for the U.S. economy and bearish for the USD.

The ISM Manufacturing PMI report for October released on Friday, November 1, 2019 at 10AM came in at 48.3 missing forecast of 48.9 and a previous reading of 47.8. This result shows a decrease in the amount of manufacturing activity that has taken place in the past month and a decrease in economic activity as well. This result also justifies and supports the cutting of interest rates by the Fed.

Recession Worries Caused Fed to Cut Interest Rate by 25 Basis Points to 1.75 Percent

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