Market Commentary for Week Ended 9/20/2019

The Federal Reserve made their interest rate decision this week.  As expected, they announced a 0.25% interest rate cut on the federal funds rate.  The target rate was lowered to 1.75% from 2.00%.  Apparently, this wasn’t enough for Donald Trump, he tweeted “Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!”  The truth is, the US economy is doing fine.  Unemployment is at 3.7% and consequently the consumer is strong and consumer spending accounts for 68% of GDP.

A chart I would like to highlight this week is the monthly historical chart of the Fed Funds Rate.  As you can see through each cycle since the early 1980s the fed funds rate has steadily approached zero.  Perhaps what is most depressing is that after the longest expansion in US history we were only able to get short term interest rates up to 2.5%.  It seems apparent from the downward trend that the zero bound may be broken during the next recession.