The Fed Cuts Rates as Preventative Action for Trade War | Financial Buzz

The Fed Cuts Rates as Preventative Action for Trade War

The Fed is expected to cut interest rates for the first time since 2008 as a pre-emptive action for the effects of the trade war on the economy.

“The market is pricing in a 25 basis point cut,” said Quincy Krosby, Chief Market Strategist with Prudential Financial. “We already know of two Fed presidents who don’t think we need it, so there’s obviously going to be a discussion, with the strong data. The chairman, who is in the camp that we need to have an insurance cut, is going to make the case that while the economic data are all gaining strength, they are still worried about weakening conditions, due to uncertainty regarding trade and tariffs.”

After the long cold trade war between the Trump administration and Beijing, there has been a decline in gross private domestic investment in second quarter GDP of 5.5%, which is the worst in the category since 2015. Exports have also fallen by 5.2%.

Many officials believe that the rate cuts need to be even lower to provide a cushion for the uncertainty from the trade war despite a “good looking” economy. They also worry that inflation pressure are still too weak, which implies there is a lack of stimulus for economic growth.

To avoid this detriment to the economy, Fed officials state they must fight harder to raise inflation while the economy is still good.

Investors will be awaiting further news on trade as U.S. delegation will return to China for the first round of in person talks since May.