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Out of Patience! Fed Sets the Table for Rate Cuts

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It looks they’ve run out of patience at the Eccles Building.

The Federal Reserve Open Market Committee wrapped up its June meeting yesterday leaving interest rates unchanged. But the talk coming from the central bankers was decidedly dovish. Patience was not in the Fed’s vocabulary. Instead, Powell and company talked about “uncertainty” and said they would “act as appropriate to sustain the expansion.”

As Peter Schiff said in his podcast, the table is now set for a rate cut in July.

As you’ll recall, the word “patient” was a key word in the Fed’s pivot to the “Powell Pause.” Most analysts believe that by dropping that verbiage, the Fed is signaling another pivot. In fact. Powell didn’t mince words. He flat out said there is rising rate cut sentiment among the Fed bankers. Powell said, “Overall, our policy discussion focused on the appropriate response to the uncertain environment.”

Many participants now see the case for somewhat more accommodative policy has strengthened.”

Peter said this meeting was in keeping with its tradition of incrementalism.

Before delivering an official rate cut, what the Fed wanted to do was prepare the markets in advance and take one step in that direction, which was to tweak its language to officially adopt a bias toward easing, which is exactly what the Fed did.”

Going into the FOMC meeting, the Fed Funds Futures pointed to about an 80% chance for a July rate cut. After the meeting, it projected a 100% chance of monetary policy easing in July.

The markets are convinced that whatever data the Fed sees between now and the July meeting is going to be bad.”

Peter reiterated that we’re heading for recession, although the central bankers will never admit it out loud. The data has been weakening for months. Peter noted that historically, within six months of the first rate cut in an easing cycle, the economy is in recession.

Now, a lot of people are in denial right now because they want to pretend that the cut is just for insurance. We just want to make sure we don’t have an economic downturn. So, we’re cutting rates just in case. That is just wishful thinking.”

As far as Powell’s desire to “keep the expansion going,” Peter said the problem is the expansion is a bubble.

The only thing keeping it going is the Fed. It’s an expansion that was created by the Fed, created by cheap money, and it needs more cheap money to survive longer. But the problem is all of this is destructive for the US economy. That’s what no one wants to admit. Keeping this expansion going is like sustaining a drug habit. Maybe you feel good while you’re high on drugs, but ultimately you are undermining your health and the best thing to do would be to kick the habit and go through withdrawal. But we’re not going to do that.”

Peter said there is one thing that could derail the rate cut train – a trade deal with China that eliminates a lot of the tariffs. But Peter said even if that were to happen (and he doesn’t think it will) it would only be a temporary delay.

The rates are going to be cut anyway, because even if we get a BS trade deal that causes the market to rally and people to be more optimistic, it’s not going to stop the recession from coming. That’s inevitable. We’re going to have a recession.”

Gold climbed on the Fed news. The yellow metal surged 2% Thursday and hit its highest level in more than five years.

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