US Industrial Production rose 0.48% YoY in July, showing a distinct slowing trend reminiscent of the IP slowdown in 2015 under President Obama with Fed Chair Janet Yellen at the helm of the USS Federal Reserve.
Of course, under Yellen the Fed Funds effective rate was near 25 basis points for most of her term, even when IP growth was around 4% (2014). Under Powell’s Reign of Error, the Fed Funds Target rate was being normalized (raised) until September 2018 when IP YoY began to slow. Yet Powell continued to raise the Fed Funds target rate. But as IP YoY continued to fall, Powell stop cutting rate and eventually made a modest cut of 25 basis points.
The forward curve for the Fed Funds Target rate (orange dashed line) is steeply downward sloping, indicates that market participants are betting on rate cuts down to 1.40% by late 2019. But is that too late?
The Federal Reserve’s model for interest rate management.
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