Fed not likely to cut rates this time: Peter Cardillo, Spartan Capital
“I believe Fed will have a dovish communiqué and open the window for an eventual cut.”
What are you expecting the Fed to do? Will they go ahead with the rate cut or guide towards the rate cut through the course of the year?
I do not think they are going to cut rates. They basically will pave the way for a rate cut down the road and I am not so sure it is going to happen during the summer either. First of all, we need to gather more evidence in terms of the economy slowing down. Indeed, some macro indicators have been weak but there has been some strong macro indicators as well. Last Friday, we saw IIP figures. The jury is still out there on economy weakening to the point that we could wind up in recession.
The other thing is that yesterday President Trump tweeted that he is going to have an extended meeting with the President of China and that renews hopes of some sort of a trade deal which I believe is coming soon. It does not mean that we are going to get the trade deal the administration is looking for. It will be something that somewhat cosmetic in the sense that there will be some agreement and talks will continue to go on. With that in mind, the Fed will have to be very careful in lowering rates anytime soon.
There are lots of things that the Fed needs to observe. I believe they will have a dovish communiqué and will open the window for an eventual cut but it is not going to come tomorrow.
When we talk about what is happening with various global bankers around the world, do you think a dovish commentary is something which has changed in the last 12 months?
Absolutely. Look at the Chief President of ECB, Mario Draghi. He indicated yesterday that he is open to more stimulus and basically paving the way for a rate cut going down the road. China has been stimulating their economy and there is no question the global economy has weakened and some of these economies need crutches again.
The question is does United States follow? I do not think so. Right away, it depends on the trade deal and of course further macro data that may suggest even weaker than present economic activity. So there is still some jury in terms of the US Fed but in terms of Europe, China. I suspect that it is probably going to hit some of the emerging markets as well. It is very possible that we could see India move on that path.
When we look at the markets, what do you make of the lack of confidence that is visible across the board? Is that the reason why there is no aggressive buying or selling?
No, I do not think so. It is just a question of wait and see. We never know what is going to happen in terms of macroeconomic activity but the consequences of this trade war depends on Washington and of course Beijing coming to terms.
From a psychological standpoint, the Trump administration realises that with the upcoming elections in the States, they need to settle this rather quickly even though White House seems to be adopting a tough tone and threatening tariffs.