David Rosenberg: Fed may be getting ready to cut

Federal Reserve chairman Jerome Powell looks as though he is now getting ready to cut interest rates, says David Rosenberg, chief economist at Gluskin Sheff.


Federal Reserve chairman Jerome Powell looks as though he is now getting ready to cut interest rates, says David Rosenberg. At his latest speech in Chicago this week, the head of the US central bank who has tried so far to strike a tough tone on monetary policy sounded far less "hawkish" than he has in the past. He made no effort, notes Rosenberg, to counter market expectations that there will be two rate cuts before the end of the year. Powell also noted that at some point in the future, US interest rates will once again hit the "ELB" (effective lower bound, or 0%), and that the central bank has to be ready for that.

The nod to lower rates helped markets rally strongly in the middle of the week. "Market-based odds of a move as early as July have shot up to 50-50 from just 20% a month ago." But while this "could certainly spark a brief rally," don't get too excited, says the oft-bearish Rosenberg. The Fed typically only starts to cut rates when the economy is heading for (or is already in) recession. "Investors with long time horizons... know that you don't go long on the first rate cut; you go long on the last."

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

One big risk in the next recession is that lenders to companies now have far less protection than at any time in the past (because the conditions "covenants" attached to loans are so lax), which means that they will lose more money during the downturn, as corporations default on their debt. This is how the next economic recession could turn into a financial one. "Hold on to your hat," he warns.




How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Stock markets

The British equity market is shrinking

British startups are abandoning public stockmarkets and turning to deep-pocketed Silicon Valley venture capitalists for their investment needs.
8 Nov 2019

Why Wall Street has got the US economy wrong again

The hiring slowdown does not signal recession for the US economy. Growth is just moving down a gear, says Brian Pellegrini.
25 Oct 2019
Stock markets

There are lots of reasons to be bearish – but you should stick with the bulls

There are plenty of reasons to be gloomy about the stockmarkets. But the trend remains up, says Dominic Frisby. And you don’t want to bet against the …
17 Jul 2019

Most Popular


Money Minute Friday 17 January: UK weakness likely to continue

Today's Money Minute previews UK retail sales figures the UK, inflation data from Europe and industrial production from the US.
17 Jan 2020
House prices

UK house prices may be heading for a Boris bounce

The latest survey of estate agents and surveyors from the Royal Institution of Chartered Surveyors is "unambiguously positive" – suggesting house pric…
16 Jan 2020

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020
Share tips

Class acts going cheap: buy into Europe’s best bargains

Value investing appears to be making a comeback, while shares on this side of the Atlantic are more appealing on metrics such as price/earnings ratios…
16 Jan 2020