Tariffs could be the Fed’s excuse to cut interest rates – Fixie News
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Tariffs could be the Fed’s excuse to cut interest rates

The Federal Reserve needs an excuse to cut rates at its next meeting, and it will point to the tariffs as an impetus to cut.

But let’s call it what it really is. The Fed raised rates too quickly late last year, and now needs to adjust accordingly.

As rate hikes tend to act with a six-month to nine-month lag effect, the slowing economy correlates rather strongly with the excessive Fed hikes of September and December.

Friday’s May jobs report came in at 75,000 positions, compared with the 180,000 expected. While not terrible in my eyes because of the improving wage component, it was still a disappointment attributable to past rate hikes.

So after six straight down weeks in the stock market and bond rates plummeting to ridiculously low levels, Fed Chairman Jerome Powell finally got the message being sent by the markets. Last week, Powell said in Chicago that the Fed is openly leaning toward easing in the upcoming months. “As always,” he said, “we will act as appropriate to sustain the expansion.”

Like all Fed chiefs, he grabbed the closest monetary fig leaf by citing “recent developments involving trade negotiations and other matters” and continuing on with, “we do not know how or when these issues will be resolved.”

The Fed’s mandates are simple and clear: Maximum sustainable employment while fighting inflation.

Remember, the Fed has caused many recessions, so correcting its errors is prudent and proper. That will earn it credibility in my book. Making mistakes is OK, denying them is not.

To me, a quick one-time adjustment of a 50-basis-points cut would be ideal.

President Trump provided the perfect cover by issuing tariffs, and now the Fed has a slowing job market on its hands.

One thing is for sure: The Fed needs to stop fighting fake inflation. If not, then it will once again tip the economy into a slowdown, and that serves nobody’s best interest.

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