Fed Minutes, Powell Remarks Reveal A Divided/Reluctant Fed, “Trick or Treat”

Highlights of today’s release of the September 2019 Fed meeting minutes: (1) Fed members are wary of futures markets that indicate multiple rate cuts in the next 6 months (note that the CME markets indicate an 93% chance of a rate cut on Halloween). They feel that market expectations may be “ahead” of reality. The danger is that if the Fed doesn’t match the expectation, major selloffs in stock markets will occur; (2) The Fed will start buying treasuries again in order to inject more liquidity into the system in the wake of the recent near meltdown in the overnight lending “repo” markets. However, don’t call it “QE (Quantitative Easing)”, Powell referred to it as an “organic” process that is more “data dependent”, (they will put out fires as needed); (3) Powell discussed “profound changes in the economy” and how existing metrics and reports may be inadequate; (4) Trade disputes are a huge concern, over 25 mentions of trade and tariffs in the meetings, members are concerned about the effect of tariffs on economic activity. US/China trade deal expectations are very low, expect another “kick the can down the road” announcement on Friday, more talks and a delay in the Oct 15 scheduled tariff increases, but no “major breakthrough”. Stay tuned.

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