This document is being provided publicly in the following form. Please subscribe to FSInsight.com for more. Members Area Fed Watch The Fed Says ‘We Are the World” Central Bank Now Fed Watch The Fed Says ‘We Are the World” Central Bank Now July 19, 2019 Vito J. Racanelli SENIOR EDITOR & MARKET INTELLIGENCE ANALYST At this point, it’s pretty much a given that the Federal Reserve Board is going to cut interest rates at the Federal Open Market Committee meeting on July 30-31. However, there’s some interesting cognitive dissonance coming from the latest Fed beige book released last week. Domestic economic activity is seen expanding modestly amid trade fears, the Fed’s report said last Wednesday. The beige book survey is derived drawn from business contacts across the U.S. the central bank’s 12 regional banks. The report stated: “The outlook generally was positive for the coming months, with expectations of continued modest growth despite widespread concerns about the possible negative impact of trade-related uncertainty. That’s not what I would call a ringing endorsement for rate cuts. It seems that the Fed is trying to anticipate a recession. While that sounds all well and good, I have very little faith in any government institution being able to do that, or “manage” a $21 trillion economy such as ours. So despite an economy that seems healthy and not recessionary, the Fed’s chairman, Jerome Powell, has clearly signaled in recent weeks a cut of the Federal funds rate is on the way. The sharp drop in yields demands it. Whether the expected end of month cut is 25 basis points or 50 is a question for another day. With the beige book results as a backdrop, note what Powell recently explained in Congressional testimony and again at a speech last week. Indeed, investors need to recognize this as likely a permanent policy change. The Fed is no longer the U.S. central bank. It is the world’s central bank now. In Congressional testimony the previous week, Powell noted that the Fed is ready to reduce rates again to cushion the U.S. economy against rising risks from slower global growth. He said it again at a speech Tuesday and it’s worth noting his exact words, as reported by The Wall Street Journal (below). Powell focused on how the upheaval of the 2008 financial crisis reshaped the central- banking landscape, leaving a very dierent set of policy challenges than the ones faced in prior decades. Hmmm. It will require policy makers to place more weight on the global dimensions of domestic policy decisions, he said. One lesson of the crisis and the ensuing decade, Mr. Powell said, is how “U.S. economic developments aect the rest of the world, and the reverse is also true,” Mr. Powell said. The reverse is also true, he said. Say that again. The Fed is now the self-appointed World’s Central Bank, the WCB. This has clear repercussions for domestic investors and rates. The 10-year Treasury note yield is around 2.05%, versus 2.12% the Friday before. The CME Fed futures market, a pretty accurate indicator of where rates are going, continues to place a 100% probability of at least one cut at the next FOMC meeting July 31 and another in September. Upcoming: 7/30-31 – FOMC meeting. Vito J. Racanelli SENIOR EDITOR & MARKET INTELLIGENCE ANALYST Disclosures (show).