The Fed Joins the Central Banks’ Reversal Back to Rate Cuts, QE

July 10, 2019 (EIRNS)—After Chairman Jerome Powell’s testimony to House Financial Services today, the Federal Reserve is fairly well locked into a discount rate cut at the end of this month. His prepared testimony immediately created what financial media describe as a “100% expectation” of a cut now; so the lack of one—the Pittsburgh, Dallas and Kansas City presidents will argue against one—would cause havoc on stock and bond markets.

Regarding the real economic world, the key point in Powell’s prepared testimony was that business capital investment has fallen off dramatically after the relative “surge” of 2018 after the big corporate tax cut.

Other than that, the Fed chair largely pointed to the growing global manufacturing and trade recession, as a factor “outside” the United States. “Crosscurrents have reemerged,” Powell said. At the June Federal Open Market Committee meeting,

“Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”

Powell also stated, during questioning, that the “very strong” June jobs report did not change the FOMC’s outlook. The Fed has its own data and can ignore the extreme “seasonally adjusted” month-to-month swings put out in Labor Department headlines. It is aware that the pace of U.S. job creation has dropped by about 15% from 2018 to 2019 and wage growth, which never got very far, is back down at 2.5% a year or lower.

The global reversion back to zero interest-rate policy and quantitative easing has come so far so fast, that Zero Hedge today was able to list 14 corporate junk bonds which currently bear interest rates below zero.