The Federal Reserve on Wednesday cut interest rates for the third time this year in a move to ensure the US economy weathers a global trade war without slipping into a recession but signalled its rate-cut cycle might be at a pause.
Here's what experts, James Glassman, senior economist, JPMorgan Chase and Geoffrey Dennis, emerging markets commentator, make of the move:
Glassman said the decision could have been due to trade concerns that the industrial economy has slowed down or stalled. “They are worried that all these trade tensions could slow the economy more than they want although we are not seeing any sign of it," he said.
Going forward, “I think you will have to see unemployment rise before they will begin to think about cutting rates again,” said Glassman.
According to Glassman, it makes sense not to raise interest rates until you see inflation moving consistently above. “If they become more and more comfortable that things are doing okay, I suspect that some of them would want to try to reverse course but I don’t think that is any time soon,” added Glassman.
Dennis said he is surprised with the positive reaction of the markets that Fed will not cut hereafter. “I think it seems that the markets are happy that the US Fed gave no indication that they would raise rates again any time soon, which seems bizarre because we are in a rate-cutting cycle.”
Talking about emerging markets, Dennis said, "My sense is markets are looking quite vulnerable at this level because my view is that we are moving towards a much slower US economy and we are going to be heading towards a recession in next 12-18 months. So, I think markets are getting a real ahead of itself, generally equity markets worldwide.”
With regards to Indian market, Dennis said, “I have always argued that it is a more defensive market against this sort of backdrop and India is a relatively good performer going forward but how much more absolute upside we can get is very difficult to judge because the global equity markets themselves look a little overstretched to the upside.”
Dennis said India will continue to outperform going forward but in softer market conditions because overall markets are getting way ahead of themselves now.