Trump’s veiled message for the US Fed from Korea

“When we announce good news, we want the stock market to go up,” US President Donald Trump said in his speech at the APEC Summit, possibly as a veiled push for the US Federal Reserve to deliver the much-awaited interest rate cut on October 29.The two-day review of the monetary policy by the US Federal Reserve is scheduled to end today.

Expectations of a rate cut prop up the market as participants expect more liquidity and vice versa. The S&P500 has gained over 5% in the last two-and-a-half weeks, expecting the US Fed to deliver a rate cut on Wednesday.

“Financial conditions are near historically easy, GDP is tracking 3.5-4%, financial assets are ripping, and inflation remains well above the Fed’s target. In more normal times, there is no way the Fed would be cutting rates,” Richard Bernstein, the CEO of a Wall Street investment firm, told CNBC a day before the Fed’s interest rate decision.An interest rate cut is often seen as a stimulus for a struggling economy. The US President wants the American central bank to cut interest rates while claiming that his policies have bolstered the world’s largest economy.

Trump wants the US central bank to push interest rates down as part of the administration’s efforts to draw investments into the country’s manufacturing sector.

However, the tariffs imposed under Trump threaten to push prices up for US consumers, which would prohibit easing in monetary policy.

Therefore, policymakers are divided. On one hand, the risk is rising in the US job market— exacerbated by the layoffs — which would prompt a rate cut.On the other hand, the rise in core inflation — which has been 3% in each of the last three months, 100 basis points more than the Fed target — would limit the room for the inflation hawks within the Fed to ease their position.

The lack of data due to the government shutdown in Washington D.C., since October 1, has made the economic situation less visible for policymakers.

However, markets have already priced in a 25 basis point rate cut after the latest inflation data showed softer-than-expected price rise overall, setting the stage for a potentially second consecutive cut in the Fed funds rate for the year.

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