According to Federal-funds futures, there appears to be hope that Federal Reserve Chairman Jerome Powell will cut interest rates by the end of this year.
“I don’t understand where this Fed rate cut hopium is coming from,” Option Pit founder Mark Sebastian told Yahoo Finance On the Move. “But I think there’s some outside influence. I don’t see a rate cut this year... I think the Fed fund futures have it wrong.”
President Donald Trump has been vocal regarding his views on the impact of rates, stating clearly: cut rates and help him win the trade war with China.
China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!— Donald J. Trump (@realDonaldTrump) May 14, 2019
Sebastian believes Powell would not want to cut rates at all, rather, he would prefer to raise them. “The fact is, where we are now, with all this uncertainty around China, he [Powell] can’t raise rates. But if he could, he would raise rates,” Sebastian stated. “I don’t think he would drop them.”
In regard to the U.S.-China trade war, Sebastian believes its impact on the markets is “playing itself out.” Sebastian told Yahoo Finance: “I think what we’re gonna see now is kind of a return to where we were two weeks ago... slow, normal, up a little bit.”
When the U.S. imposed the 10% tariff on $300 billion worth of Chinese goods, “we moved without a blip,” Sebastian said, adding that the economy did fine and the markets just “flailed around.”
“I think the secondary raise [in tariffs] is more known than the first time they added the tariffs. I see it as something that stops the market from rallying, but the idea that it is going to be the catalyst that sends us into some nightmare-ish 20% selloff… I don’t see it happening,” Sebastian stated, referring to the most recent increase of tariffs on Chinese goods to 25% from 10%. “The volatility is probably over.”
Taylor Locke is a producer for Yahoo Finance On the Move.