Central Banks Bust Out the “Punchbowls”, Do They Have Enough?

Recent uncertainty and volatility surrounding tariffs and trade disputes is worrying central bankers tasked with maintaining growth and stability. With “trade talk” dominating the headlines (Are they talking? Not talking? Deal? No Deal?), its easy to overlook that the “regular” economic news has been tepid during the past few weeks (Manufacturing activity, factory orders, etc.) has been tepid. The fear is that the boost from the tax cuts is waning and economies are flagging and being hit by the major trade uncertainty. The major central banks are springing into action: Australia’s Central Bank cut rates to a record low on Tuesday, India may follow suit soon and the economies neighboring China are highly affected. The ECB is rolling out new ultra cheap loans to banks and may cut rates soon. And, yes, the US Fed is now ready to cut rates, the only question is how many rate cuts? Monday’s hint from Fed Official Bullard started the chatter, but Fed Chair Powell’s statement yesterday that the Fed was prepared to “sustain the expansion” immediately jolted markets to the upside. This week, the 10 year T dropped to 2.03% this week, touching the lows last seen in Sept 2018 during the North Korean aggressive missile test and market panic. Some key analysts are dropping their 10 year 2019 year end predictions to about 1.75%.Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners