page contents

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

Disclaimer

Information in this video, and in our articles published on Mstardom.com, may contain forward-looking statements, which could involve high risks and uncertainties. Markets and instruments profiled in our videos and in our published articles, are for informational purposes only and should never be taken as professional advice or recommendations to buy or sell in these assets. You should do your own in-depth research before making any investment decisions. Mstardom Finance does not guarantee that the information presented in our videos and articles is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is timely in nature. Investing in Open Markets involves a high degree of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. Thank you! And Good bye!

Check Also

US Economy Experiencing Slow Growth Confirmed by Non-farm Payroll, Manufacturing, and Retail Sales Data

The Core Retail Sales Report measures changes in the total value of sales at the retail level in the U.S., excluding automobiles. The report shows the rate of consumer spending. It functions as a pace indicator for the U.S. economy, how fast or how slow the growth of the economy is currently progressing. As we can see in the report, the previous reading was 1.0%, the forecasted reading 0.1%, and the actual reading came in at 0.0%. So, this is confirming that U.S. economic growth has slowed down dramatically or is slowly growing.

Federal Reserve Struggling to Prevent US Economy from Slumping Like European Economy!

By Glenford S. Robinson The United States Federal Reserve recently took steps to jump-start the …

The Federal Reserve Cut Interest Rate by 25-Basis Points, Wednesday! But Why?

Is the Feds cutting rate because of pressures from President Trump? Or, is the Federal Reserve cutting rate as a result of uncertainties presented by the ongoing trade war between the U.S. and China?

Pre-recession Could be Current State of U.S. Economy, Emotionally!

Defining a recession as two consecutive quarters of negative GDP growth doesn’t tell the whole story of the effect human emotions has on the financial markets. Before there are any consecutive quarters of negative GDP growth, there is the impact of human emotions on the financial markets, which should be taken into consideration. So, by the time two quarters of consecutive GDP growth hits the headlines, investors’ emotions would’ve already nose-dived into depression, dragging down the economy with it. That scenario could be the vampire plaguing the current U.S. economy.

Fed Chairman Powell Signaled US Economy Could Be on Verge of Economic Collapse

Could the US economy be on the verge of an all-out economic collapse? Well, the urgency with which the Federal Reserve Chairman Jerome Powell has acted says exactly that. The Chairman hinted on Friday that the central bank would continue its rate cutting plans started last month (rate cut of 25-basis points).

US Treasury 30-Year Bond Yield Hits Record Low, Economy Heading for Recession?

The infamous inverted yield curve is used to forecast economic recession and it too has shown itself a few times recently, flip flopping its way into the hearts of paranoid investors. The take-away from this is that for a true economic recession to occur, the inverted yield curve must remain inverted for many months to qualify as a true predictor of economic recession.

US Federal Rate cut has come and gone, Now What?

The price of gold has certainly benefitted from the US-China trade war, hitting a six-year high of $1,510. When there are uncertainties in the US dollar and global economy, investors look for safe-haven asset classes to stash their cash. Gold is one of those safe-haven asset classes that investors turn to during times of trouble. In addition, the price of gold is inversely proportional to the price of the US dollar. This means that whenever the price of gold goes up, the price and value of the US dollar goes down. So, as currency traders who trade the USD against other currencies, we should all understand the relationship between the USD and AUX (Gold).

%d bloggers like this: