SMM News: the warming of the international trade situation has brought pressure to the financial markets, the dollar index fell sharply, the Wall Street stock market plummeted. Major U. S. stock indexes tumbled about 3% late Monday, while the dollar index hit a new low of 97.595 since July 25. Fed officials say they are assessing the impact of the trade situation on the monetary policy process
Fed officials said on Monday that they were closely watching the sharp decline in the U. S. stock market to assess the impact of renewed trade tensions on the economic and monetary policy process.
'There is no doubt that I am closely monitoring the impact of developments on the economic outlook, 'Mr. Brainard said at a forum at the Federal Reserve Bank in Kansas City.' I will continue to monitor developments closely, 'Mr. Brainard said at a forum at the Federal Reserve Bank in Kansas City.
While Fed officials say they avoid paying too much attention to day-to-day changes in the market, even significant movements, the continued decline in share prices could affect the spending plans of businesses and households, thereby affecting the Fed's view of the economy.
'i and others have said that we are committed to maintaining the expansion of the US economy and, if necessary, will cut interest rates further, 'Mr. Brainard said. Brainard last week supported the Fed's decision to cut interest rates by 25 basis points.
By contrast, Kansas City Fed Chairman George voted against a rate cut, but she said on Monday that she was also watching the market reaction to the latest escalation in the trade situation.
Speaking at the forum, Mr George said the market was moving quickly. It takes a while to see how it evolves, and the best thing you can do now is to watch what happens.
The incident shows that the Fed is in a disturbing predicament as the US economy continues to perform relatively well and the Trump administration's trade policies strain financial markets and increase economic risks.
The recent deterioration in the international trade situation could also lead Mr Trump to put further pressure on the Fed to respond by cutting interest rates further. Other things being equal, low interest rates weaken the value of the dollar, making US goods relatively cheaper overseas.
Traders in contracts related to the Fed's policy rate now expect the Fed to cut interest rates at the remaining three policy meetings this year.
The US service sector slowed in July, with the index of new orders falling to a three-year low
Us service sector activity slowed in July as new orders fell to their lowest level in three years, suggesting the economy lost further momentum at the beginning of the third quarter. Last week's data showed a slowdown in employment in July and continued weakness in the manufacturing sector.
The reports superimposed the trade situation, suggesting that the Fed will cut interest rates again next month to sustain the longest economic expansion in history for a decade. The Fed cut short-term interest rates last week on the grounds that trade tensions and weak global growth pose greater risks to the US economy.
Jennifer Lee, a senior economist at the BMO Capital Markets in Toronto, says the trade situation has hurt the economy and is now intensifying. The Fed will step in again, perhaps in October or earlier, but it can only do so much for already low interest rates.
ISM said its index of non-manufacturing activity fell 1.4 percentage points to 53.7. This is the second month in a row that the index has fallen. A reading above 50 indicates expansion, with non-manufacturing accounting for more than 2/3 of US economic activity.
The ISM reported last week that manufacturing activity fell to a three-year low in July, noting that "trade remains an important issue."
Huitong Financial Watch believes the sharp decline in the US stock market, coupled with a slowdown in US manufacturing and services, is bound to lead Mr Trump to put further pressure on the Fed to respond by cutting interest rates further. But the Fed has limited room to cut interest rates, so a 50 basis point cut this year is more likely.
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