Traders and analysts have recently gotten excited at the prospect of an interest rate cut by the Federal Reserve in the coming months, with some expecting the move as quickly as next month. But comments from Federal Reserve policymakers on Tuesday indicated that the central bank would not be pressured by either President Trump or the markets, both of which are in favor of an interest rate cut by as much as a half percentage point.
"The Fed is insulated from short-term political pressures," said Powell in his statement. James Bullard, President of the St. Louis Federal Reserve Bank, also noted that the current economic situation in the U.S. is not pressing enough to demand a half-point rate cut. When asked directly about the plan for an interest rate cut, Richmond Federal Reserve President Thomas Barkin simply said "I don't know." The comments yesterday seemed rather incongruous with the sentiment shared after last week's Fed policy meeting in which the central bank hinted that rate cuts could come as quickly as July.
Markets React to Fed Comments
The U.S. dollar headed higher after the Fed comments, with the dollar index trading up 0.16 percent as of 1:23 p.m. HK/SIN, to 96.29 .DXY. The greenback surged 0.23 percent against the yen to 107.42, while the British pound eased 0.20 percent against the dollar to $1.267. The euro also eased against the dollar, trading down 0.07 percent to $1.3178.
Asian stock markets were mostly lower on Wednesday afternoon, following a trading session on Wall Street on Tuesday in which all three major benchmarks closed lower. Losses were tempered in Asia, with South Korea's Kospi down 0.09 percent and Australia's ASX 200 down 0.12 percent. Japan's Nikkei 225 saw the steepest losses, down 0.69 percent. Hong Kong's Hang Seng Index managed to eke out modest 0.05 percent gains.
With the Fed comments behind us, traders are now looking towards Saturday's meeting between U.S. President Donald Trump and Chinese President Xi Jinping, who will be meeting at the G-20 summit in Japan, with the hopes of ameliorating some of the trade tensions that have been harming the global economy. Analysts have begun to worry that failure to strike a deal this weekend could result in a global recession.