–The Boeing 737 MAX Rate Cut?
By Denny Gulino
WASHINGTON (MaceNews) – If the Federal Open Market Committee wanted some cover to back out of a rate cut Wednesday it could look no farther than toward the Treasury Department which Monday declared, “Downside risks in the second half of 2019 appear to be lessening.”
Of course, next door to the Treasury Department, the chief denizen of the White House was tweeting, “The Fed has made all of the wrong moves. A small rate cut is not enough,.”
In another tweet about the same time, the president said, “The Fed ‘raised’ way too early and way too much. Their quantitative tightening was another big mistake.”
Could Chairman Jay Powell and Vice Chair Richard Clarida and New York Fed President John Williams consider for a moment bucking the CME’s FedWatch Tool’s rock solid 100% market sentiment reading for a rate cut? What message would that send, that the economy’s future is looking better than everyone thought? And that would be crushingly bad news?
It’s too bad everyone has to wait for five years for the actual transcript of an FOMC meeting to be published. Because this meeting should have some actual discussion, not simply the predigested themes the members tell Chairman Powell about in the days before the meeting as he calls around to get a sense of the consensus going in.
This time Eric Rosengren will likely want the transcript to reflect the views from the Boston Fed that he spelled out for CNBC 10 days ago, that, “I think we should wait” until the uncertainties, the threats, the potential for trouble, actually appear before cutting rates.
As for the Treasury Department, those words, “downside risks in the second half of 2019 appear to be lessening,” appear in the long memo the department’s economics staff puts together every quarter for the Treasury Borrowing Advisory Committee, otherwise known as T-BAC.
That group of top-tier figures in the credit markets get a briefing after which it puts together its best advice for Treasury on current debt market conditions and what the department should be thinking about in the future, a future that will include a lot more borrowing now that the House, Senate and White House have agreed on new higher spending for the next two fiscal years.
The T-BAC’s recommendations as well as the Treasury’s borrowing plans for the upcoming quarter – now free of the threat of any default – will be announced Wednesday morning at 8:30 ET.
The last time the FOMC met, Powell told his post-meeting news conference that the case for additional accommodation had strengthened in the face of slow global growth, the overhang of negative yields overseas, the open-ended uncertainty about supply lines caused by trade brinksmanship and the consequent slowdown in business investment confirmed, by the way, to be an actual decline by the latest GDP report. A persistent additional concern: an inflation rate stubbornly below target.
But the Treasury economics staff drew a different picture Monday. “Although headwinds from slowing global growth persist, fiscal uncertainty has faded and a slowdown in manufacturing may be transitory,” the outlook read by Principal Deputy Assistant Secretary Michael Faulkender said.
It’s true, he said, that the second-quarter GDP report showed business fixed investment declined 0.6%, subtracting a tenth of a point from GDP growth. Yet equipment investment alone rose 0.7% after a solid upwardly revised 4.4% advance in the first quarter.
Besides, he said, there was a reason quite apart from any uncertainty about trade with China, Europe and Japan. “The slow equipment investment growth rate was significantly impacted by the grounding of the Boeing 737 MAX airplane,” Treasury’s Faulkender said.
Perhaps that’s a new rationale for cutting the federal funds rate that will be heard Wednesday afternoon if Rosengren can’t sway his colleagues to ignore expectations.