Markets More Skeptical On Economic Outlook

This insightful monthly market commentary will help you look beyond the headlines to better understand what is driving the current market trends that could impact your credit union’s investment portfolio.

The month of July concluded with a widely expected rate cut from the Federal Reserve, which lowered the fed funds target range 25 basis points (bps) to 2% 2.25%. The interest on excess reserves (IOER) rate was also lowered by 25 bps to 2.10% and the Fed will end balance-sheet reduction two months ahead of what was previously scheduled (also expected ahead of the meeting). Fed funds futures had been pricing for rate cuts since late 2018, and the probability of a July cut rose to 100% following Fed Chair Jerome Powell’s testimony before Congress on July 10. As such, market participants were more focused on the FOMC’s tone and forward guidance following its July 31 meeting. Would the Fed characterize the move as the beginning of a new easing cycle, or would the July decision be more of a one-and-done insurance cut? The official statement and press conference were not totally clear (or perhaps inconsistent) on that front.


  • The Fed met market expectations with a July rate cut, but future policy is less certain.
  • The U.S. and China resumed negotiations during the last week of July and the Trump administration has discussed potential waivers for American tech firms selling products to Huawei.
  • President Trump roiled markets on August 1 tweeting that new tariffs would be levied against China in September.

The official statement was digested by the markets first and there were no key words included that would suggest the rate cut was an isolated event. It pointed to global uncertainty (largely trade concerns) and muted inflation pressures, which were highlighted in previous FOMC statements. Powell’s press conference was less clear with regards to future policy decisions. He initially characterized the rate decision as a mid-cycle adjustment to policy. When pressed for clarification by a Reuters reporter, Powell said it shouldn’t be considered the beginning of a lengthy cutting cycle. Powell later explained further:

Let me be clear. I said it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. I said when you think about rate cutting cycles they go on for a long time. The Committee is not seeing that, not seeing us in that place. You would do that if you saw real economic weakness and thought the federal funds needed to be cut a lot. That’s not what we’re seeing.

This market overview is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions. Read more from ALM First about the latest economic data releases and overall market trends at

August 7, 2019

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