The real reason the Federal Reserve slashed US interest rates by 0.5% last week
Recessions, like cancer, are incredibly difficult to detect early.
Indeed at the start, they typically lurk hidden in the background for quite a while - before finally being declared 3-6 months after GDP has actually turned negative.
This time-lag is probably why on Wednesday, Fed Chair Jerome Powell decided to inject a jumbo 0.5% shot of interest rate immunotherapy into the economy's bloodstream. The idea being to try to kill off any 'hard-to-detect' tumours that are presently circulating there.
However, nothing should be taken for granted. Mr. Powell's super-sized actions might still be too little, too late. In fact, this is exactly what the US yield is currently implying. That the Fed is behind the curve and will be forced to slash borrowing costs by another 200bps over the next 12 months (see chart).
Unfortunately though, we'll all have to wait until the next series of economic blood tests before finding out.
Disclaimer & Declaration of Interest
The information, investment views and recommendations in this article are provided for general information purposes only. Nothing in this article should be construed as a solicitation to buy or sell any financial product relating to any companies under discussion or to engage in or refrain from doing so or engaging in any other transaction. Any opinions or comments are made to the best of the knowledge and belief of the writer but no responsibility is accepted for actions based on such opinions or comments. Vox Markets may receive payment from companies mentioned for enhanced profiling or publication presence. The writer may or may not hold investments in the companies under discussion.