What happens if Fed cuts interest rate by 50bps?

The Fed meet is to be held on 31st July 2019. Most of the experts expecting for 25bps rate cut but some more analysts expecting a rate cut for 50bps. Now what will happen if Fed cuts the interest rate by 50bps? Here we see:

Inflation:

The Fed members are very much worried about the inflation rate which is much below the expected target of 2%.  So no need of rate cut and if there is a higher rate cut then the inflation will grow higher which the Fed doesn’t want to happen.

What are the key factors influencing Forex Markets?

 

 

Bond Markets:

The long term bond yields are not satisfactory for the investors as the short term bond yields gives better returns than long term yields. The investors are not in a mood to pay higher premium for long term yields. This also makes the investors that a rate cut will occur.

How bond market related to economy?

Employment rate:

The employment rate had a growth and is much more than expected by the analysts. It is not a worry even if the Fed is announcing 50bps point cut.

How Non-Farm payroll plays an important role for the economy?

Economy:

The economy is strong for U.S when comparing to other countries. If the Fed has a bigger rate cut a threat for financial market bubble may be visible. Moreover the debt will increase and move for a beginning of recession phase.

Why monetary policy important for a country?

Read more

Will gold peak $2000?

The gold prices are strong gradually increasing on global factors like Brexit deal, Trade War, Middle East tensions and World Economic growth.  The following factors will influence the gold to touch $2000:

Demand:

The World Gold Council’s 2019 figures show that total demand was increased by 7% YoY.

Central Banks bought 145.5 tonnes, which is up 68% YoY. The reason in increased demand for gold is for diversification and for safe, liquid assets.

ETFs added 40.3 tonnes with an increase of 49% YoY. But gold coin and bar investment fell by 1% and appliances usage of gold fell by 3%. Indian jewellery demand boosted up 5%.

Why gold prices are shooting up?

 

Stock Markets:

Investors stopped investing in Stock markets and diversified to gold. Trump is also one of the reason for diversification. He sacked FBI director Comey, the stock market fell nearly 0.85% at the same time gold increased by 1%.

How to trade in markets? What to be followed?

Global Factors:

The trade war is a key factor for increasing the demand for gold. After Trump and Xi had not met a deal for tariffs the gold have fallen down. But still the negotiations are going on. Iran’s drone has been shot by U.S recently. This also spurred the gold market. The uncertainty in Brexit deal also makes the investors to turn towards gold. Overall, the global economy is in bad shape inclusive of U.S. The raising inflation is the biggest worry for U.S and so expecting a Fed interest rate cut in July 2019. If fed cuts interest rate the gold will raise up.

What happens to gold on trade war?

Read more