The Federal Reserve this week suggested it was ready to battle growing global and domestic economic risks – namely the US–China trade war and political uncertainty from Brexit – as it signalled a rates cut could come as soon as next month. The US central bank left its benchmark rate unchanged, but its shift in sentiment was not left unnoticed by traders. The bulk of Fed policymakers slashed their rate outlook for the rest of the year by roughly half a percentage point, and Fed Chairman Jerome Powell said others agree the case for lower rates is building. Fed Chairman Jerome Powell said: “We are quite mindful of the risks to the outlook and are prepared to move and use our tools as needed.”
In a policy statement released this week, the central bank said it “will act as appropriate to sustain” a nearly 10-year economic expansion.
Guy Miller, chief market strategist and head of macroeconomics at Zurich Insurance, claimed the US must be prepared for a “mild” recession to hit in 2020 following the comments from the Fed.
Mr Miller told CNBC that his outlook is for the US to slip into the red next year as global conditions “will get worse”.
He said: “Our view still is that we (will) have a mild US recession in 2020.
“People forget that the reason interest rate should be cut, and the reason that the Fed has done this pivot, is because global conditions are getting worse.
“US conditions, we believe, will get worse — that will impact earnings and ultimately margins as well.”
The S&P 500 hit a record high yesterday on expectations of the rates cut, with all 11 indexes all recording gains for the session.
The benchmark S&P 500 index, which has risen about 7 percent so far in June, closed above its previous record high close on 3 May.
The focus now shifts to whether the US and China can resolve their trade row at a summit in Japan next week of leaders from the Group of 20 leading world economies.
Presidents Xi Jinping and Donald Trump are due to meet on the sidelines of the G20 next weekend.
Craig Erlam, senior market analyst at OANDA, said: “It was always going to be difficult for the Fed to live up to high market expectations.
“While the bar was set high, policymakers appear to have cleared it with ease while also leaving themselves with plenty of outs.”