Geopolitical Update: FED moves after Oil Attack, talks Negative Rates

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By Christian Takushi MA UZH, Independent Macro Economist & Geopolitical Strategist. 18 Sep 2019.

I usually don’t comment on every FED policy move, but today’s press conference by FED chair Powell deserves a comment.

The FED has moved with a 0.25% Rate Cut – Some of Chair Powell’s statements are unusually clear so the initial market reaction can be informative for the coming weeks

  1. Chair Powell has successfully taken advantage of the latest geopolitical event in Saudi Arabia, to reduce pressure from President Trump – without mentioning either. He said that “we have significant risks to our growth scenario from geopolitics and trade issues
  2. There is confusion about the short term funding tightness in the USA – Insiders see a shortage of USD
  3. Powell says the USA chose not to use negative interest rates, “we chose better options like forward guidance” (the latter is based on market confidence in its central bank, the ECB won’t like this!)
  4. Pressed on Debt: He believes US households are in strong shape, business sector debt is a concern
  5. Initial reaction says something: The USD is firm while Dow, Oil, Gold are down. 10 Yr T-Yield went from 1.74% to 1.80% as Powell made these comments. But didn’t go above 1.80%

Source: Bloomberg LIVE TV

Personal comments

There have been growing differences between the US FED and European Central Banks in recent weeks (BOE, ECB ..). The FED took a lot of fire from the White House, because of the ECB’s weakening of the EURO. I see Chair Powell sending the message to Europe that the FED won’t be passive as the ECB depreciates the EURO.

His comment on Forward Guidance is a masterpiece: It puts the ECB on the defensive, as the ECB lacks the same confidence by investors and credibility in markets. The hidden message to the ECB reads: “your markets don’t fully trust your guidance, that may be the reason why you have to rely so much on negative rates”.

Against this backdrop and following Europe’s quiet support for Iran this week, many Fed watchers and European policy watchers may interpret this as a coded message to European policy makers. A growing number of economists in Europe already believe that the ECB has not chosen the best policy mix – It has overdone the negative interest rate tool, inflicting serious damage to the financial system and the real economy.

Impressive to see how FED Chair Powell handled the tough array of questions this evening.

By Christian Takushi MA UZH, Independent Macro Economist & Geopolitical Strategist. 18 Sep 2019.

Disclaimer: None of our comments should be interpreted or construed as an investment recommendation

A distinct broad approach to geopolitical research

(a) All nations & groups advance their geostrategic interests with all the means at their disposal

(b) A balance between Western linear-logical and Oriental circular-historical-religious thinking is crucial given the rise of Oriental powers

(c) As a geopolitical analyst with an economic mindset Takushi does research with little regard for political ideology and conspiracy theories

(d) Independent time series data aggregation & propriety risk models

(e) He only writes when his analysis deviates from Consensus

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