Rate Cuts Are About Stocks Not Inflation


Most exceptional economy ever needs an emergency 1% rate cut? Sounds odd, doesn’t it? How can you have a robust economy creating over 200,000 jobs per month with nominal wages growing faster than any time in the cycle and then beg for not only a 1% emergency rate cut but also QE4? Is the argument really about inflation?

It’s not low inflation. It’s about the stock market. In 2018 the real trade spat with China began, and we can see how volatile the stock market has been since the China battle started. This drawdown chart is before this down week. Currently, the market is down again today.  However, during 2017 we saw no volatility in the stock market while the Fed was raising rates with no real inflation pressures than either. What we didn’t hear was why the Fed is raising rates when we see no inflation. The answer is, stocks were doing well.

From Doug Short:

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The Tariff man tweet last December wasn’t taken well by the markets thus facilitating the worst December in stocks since the Great Depression. How does the President fight this?

Asking for rate cuts and QE4, he needs to establish a better environment for stocks, and he truly believes that a 1% emergency rate cut and QE4 is the best way while he continues these trade talks.

Inflation is low, no question about that. However, this has been the case this century, nothing new here. While recent trade talks kept on prolonging, the calls for more and more aggressive rate cuts grew.

From Doug Short:

May CPI Short

From Doug Short:
May PCE Short

I would like to believe that Republicans found religion and realize that inflation isn’t an issue. However, I think that is a fresh take on this. Hopefully going out for decades they will always have this belief that the Fed doesn’t need to raise rates to help savers, the dollar from collapsing or have more bullets ready for the next recession. However, I don’t see that as the case. This new found religion on the Fed is more about keeping stock prices up and less volatile.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group,  which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data  daily on his own facebook page https://www.facebook.com/Logan.Mohtashami