JUNE 10, 2019 – COULD RATES BE CUT IN AS LITTLE AS 10 DAYS?
Last week’s Labor Department report was disappointing; it stated the US economy added 75,000 new jobs in May, one of the weakest increases since the recovery began in the middle of 2009. The jobless rate held steady at 3.6 percent.
The US economy is still growing, but it seems to be losing momentum as the economy continues to send mixed signals. The ongoing trade war and global economic slowdown are creating even more uncertainty. Some investors are anticipating the Fed will cut rates this summer. The FOMC meets again on June 18-19, and they have indicated they are paying close attention to the risks of a sharper-than-expected economic slowdown.
On Friday, benchmark government 10-year bond yields fell to new lows at 2 percent, signaling investors are expecting a rate cut. The bonds closed out the week at their lowest since September 2017.
A month ago, Fed Chair Powell played down the need for a cut this summer, but market uncertainty has heightened. There is little room to cut at the first sign of weakness as rates have not risen enough to create a buffer. The Fed must balance the risk of acting too soon with the costs of waiting too long. Currently, rates stand at 2.25-2.5%.