SCHQ - The Case For Cutting U.S. Interest Rates This Week

2024-07-30 02:05:00 ET

Summary

• At the start of last week, the People’s Bank of China cut its seven-day repo rate to 1.7% for the first cut in a year.
• Due to a slowing economy in Europe, I expect another European Central Bank (ECB) interest rate cut soon.
• The U.S. economy is also slowing, giving the Fed reason enough to cut rates this week.
• Candidate Trump wants to end Biden’s electric vehicle (EV) mandate, partly to save Detroit’s Big 3, which have struggled to make money on EVs.
• The stock market still has a lot of momentum from the strongest earnings for the S&P 500 in over two years, plus improving market breadth.

Everyone is cutting rates, it seems – even China. At the start of last week, the People’s Bank of China cut its seven-day repo rate to 1.7% for the first cut in a year. This cut follows a Chinese Communist Party (CCP) document upholding President Xi’s plan to put technology at the center of China’s future, while tolerating slower economic growth, near-term. The expectations for more monetary easing in China remain high, so the Chinese yuan is expected to remain weak, which should help boost China’s exports.

On Thursday, the People’s Bank of China followed up by unexpectedly cutting its one-year lending rate by 0.2% to 2.3%, the biggest cut since April 2020. In response, China’s 10-year government bond yields hit a record low of 2.17% on Friday. This tells us that market rates can force central bankers to respond. As in China, lower U.S. market rates will eventually force the Federal Reserve to cut key interest rates....

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