The minutes of the last meeting of the Federal Open Market Committee (FOMC) was published yesterday. The US central bank then decided on a third reduction in the federal funds rate range for fear of falling inflationary pressure and the economic slowdown.
What conclusions may be drawn from the minutes after the October meeting? FOMC members believe the current federal fund rate of 1.5-1.75 percent is and will remain relevant until the incoming information causes a reassessment of the economic outlook. This, in turn, seems to suggest both the lack of further interest rate cuts in the near future and the lack of hikes. The current level of interest rates, relatively low in relation to the historical average (above 5.5 percent), can be maintained for a long time.
What consequences could this have? Treasury bonds may keep interest rates relatively low compared to other asset classes. Such monetary policy may force capital to be invested in more risky assets, e.g. in shares. If we add the possibility of signing the initial agreement between the USA and China, optimism among investors could be even greater.
Today in Beijing, China’s chief negotiator Liu He was reported saying he remained optimistic his country would reach agreement with the U.S. over a phase one trade deal - Bloomberg reports. Recently, however, optimism about the agreement spoils what is happening in Hong Kong. Safe assets gained earlier because Sino-US tensions could escalate because US President Donald Trump was to sign a bill to support Hong Kong protesters despite retaliatory warnings from China. So a new chapter has been added to the thread of US-Chinese relations.
Nevertheless, the currency market is relatively calm, but maybe it's just calm before the storm …
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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