Markets are rocked by Federal Reserve – but the Chair made the right call

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01 Aug, 2019

Markets are rocked by Federal Reserve – but the Chair made the right call

President Trump is angry and financial markets are disappointed with the U.S. Federal Reserve’s statement on interest rates yesterday - but the Fed Chairman made the right call, affirms the boss of one of the world’s largest independent financial advisory organisations.

The comments from Nigel Green, founder and CEO of deVere Group, comes as markets have been rocked at Chairman Jay Powell’s suggestion that the U.S. central bank’s first rate cut in a decade does not necessarily mean it will be followed up with an aggressive rate-cutting program.

Donald Trump lashed out at the Fed’s decision via Twitter.

Mr Green notes: “The markets have been left reeling by the hawkish approach taken by Powell as they had largely priced-in two more rate cuts this year based on previous signals by the Fed.

“Powell appeared to brush off concerns of a serious downturn within the next 18 months that the inverted yield curve is suggesting. But it’s a tough call for Powell, when recent economic data has been fairly decent.

“Do they conduct their monetary policy based on economic data, or what the bond market bullies them into?

“It seems to be an unpopular view, but I believe the Chair made the right call in the current climate.”

“The markets want central bankers to give a clear forward path for rates, not nuanced, complex messages. But they should not necessarily expect this to happen.”

He continues: “As they often do, the markets have given a knee-jerk reaction to something they were not expecting. But if you read between the lines, the Chair’s statement is, in fact, fundamentally more dovish than the markets have so far recognised. 

“I believe once this sinks in, it will be acknowledged accordingly by the markets.”

The deVere CEO concludes: “The Fed is dismissing angry calls by the President and has ignored market expectations, thus far. Whatever happens in this current climate, those investors with a multi-asset, long-horizon approach are best positioned to reap the benefits and sidestep the risks.”