On Trade Talks & Fed Dissents

Friday, September 20, 2019

Lower-level negotiators from the U.S. and China are meeting for a second day today in Washington DC, hopeful to lay new ground for scheduled talks between higher level trade officials for the two countries next week. Both sides are currently declaring a near-term cease-fire, with the U.S. exempting tariffs on $250 billion worth of Chinese imports while China’s Minister of Finance is clearing 126 U.S. product lines from tariffs.

There appears to be a seasonal aspect to these exemptions, at least on the U.S. side — Chinese goods currently marked for exemption include things like holiday lights and plastic straws. The Chinese exemptions, reportedly to last fo one years from September 17, include things like cancer medication and animal feed.

All this said, the Trump administration has still earmarked new tariffs on October 15 for $250 billion in Chinese goods. However, these new taxes are scheduled for after the trade talks expected to take place earlier next month. So it’s anyone’s guess where we’ll be a month from now; that there appear to be signs of goodwill toward an agreement on both sides has leant positive sentiment to domestic indexes this week.

Dissenting Opinions of Fed Presidents

In a 7-3 vote, the Federal Open Market Committee (FOMC) decided, as expected, to lower federal interest rates by 25 basis points to 2.00% (on the top range). Fed Chair Jay Powell explained how the FOMC came down on the side of proactively addressing global economic slowing concerns; it was the second quarter-point cut in seven weeks.

Of the three dissenting opinions, there was dissent among them. Two presidents — Boston’s Eric Rosengren and Kansas City’s Esther George — voted for no change to the Fed funds rate, while the third — St Louis Fed’s James Bullard — pushed for a 50 basis-point cut.

On Rosengren’s side, he warned that lower rates would encourage investors to invest in riskier assets — implications which might eventually lead toward the problems we saw leading to the Great Recession a decade ago. Bullard, on the other hand, sees a real risk of recession in the current economy which lower rates will help alleviate in keeping the U.S. dollar cheaper for longer.

Quadruple Witching

A plethoras of options and futures contracts expire today, in a relatively rare event called “Quadruple Witching.” It’s worth noting in that trading volume is expected to rise in both the early and late periods of regular trading today, which may increase volatility in today’s market. However, whatever moves we may see will not likely be of a larger systemic nature, and we should be back to “normal” by Monday.

Mark Vickery
Senior Editor

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