A slew of events, including the Federal Reserve’s policy meeting, scheduled this week will set the tone for the rest of the year. The U.S. central bank is widely expected to cut interest rates for the first time in more than a decade at its upcoming policy meeting. Some market players expect the Fed to cut rates by half a percentage point, but the majority remain skewed toward a quarter-point reduction. Other significant events include the resumption of U.S.-China trade talks, monthly non-farm payrolls report, and release of global manufacturing data.
Former Federal Reserve Chair Janet Yellen voiced her support in favor of a 25-basis-point cut in the central bank’s benchmark interest rate in the face of a weaker global economy and low inflation in the U.S. “I think in light of the risks, I would be inclined to cut a bit,” she said, referring to the Fed’s benchmark interest rate. “I wouldn’t see this as the beginning, unless things change, of a major easing cycle. But I do think it’s appropriate.”
Ivan Martchev, investment strategist with institutional money manager Navellier and Associates, says the interest rate may not elicit the same response from the market. He says the dollar is unlikely to gain because of a massive quantitative easing all over the world and emerging markets too have too little to gain out of this rate cut.
Oppenheimer’s chief investment strategist, John Stoltzfus, suggested investors becautious in the current market environment. With uncertainty surrounding this week’s Fed meeting and another round of second-quarter results on the radar, he expects a wave of near-term volatility to ripple through the markets and pressure stocks.
Negative interest rates have a cost of its own. However, making money cheap is the only tool that central banks have at a time when governments are not increasing their spending to stimulate the economy.
In other news, Nigeria’s central bank has taken an even more aggressive stance to force commercial banks to lend more in order to help revive the fortunes of the economy. The central bank aims to penalize banks that are deemed too risk-averse.
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