Submitted by Taps Coogan on the 18th of June 2019 to The Sounding Line.
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Grant’s Interest Rate Observer founder and editor, Jim Grant, recently spoke with CNBC and shared his belief that the Fed will cut rates on June 19th, far sooner than the markets are expecting.
Some excerpts from Jim Grant:
“I think this is becoming less about Keynes and more about Pavlov. The market has been condition to demand a rate cut when it feels a little weak in the knees.”
“I think (the desire for cuts) is based in some part of the shape of the yield curve, which is everyone’s favorite data now. Indeed, it looks as if the Fed were too tight. My question is, take a longer view: We had a tech problem in 2001. The Fed accommodated that with a 1% funds rate in the hopes of levitating home prices to compensate for the decline in stock prices. They succeeded. In the wake of the mortgage difficulties of 2008, the Fed has given us approximately a decade worth of very concessionary monetary policy. Now…, I think they are going to cut in June (tomorrow). But you wonder where it ends… That is my view, that they will cut preemptively in June… I think they will cut more than once this year and they will start in June.”
“I (asked John Williams at the Council of Foreign Relations)… given the well known tendency of very low rates to incite speculation and the misallocation of resources, and given the well observed tendency of the Fed to intervene to squash difficulties in the market, is not the Fed now operating on the de-facto dual mandate of arsonist and fireman?”
With regards to trade tensions with China:
“You wonder what monetary policy can do with something as real as trade. What the Fed could do by lowering its interest rate in the face of a non-deal, is to give people the idea that rates will still go lower and it is safer to buy securities which would be unsafe at a slightly higher rate of interest, which feeds the problem of misallocation and of speculation built on the Fed’s well intended concern for the economy as a whole.”
With markets and most analysts pinpointing the Fed’s July meeting as the earliest probable date for a rate cut, Jim Grants’ June prediction is quite dovish. We will soon find out if he is correct as the Fed kicks off one of the most anticipated policy meetings in recent memory today. Regardless of what the Fed does this week, one thing remains fairly certain: the pressure will remain on the Fed for yet more rate cuts this year.
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