Stocks had rallied late on Thursday after two influential Federal Reserve officials - New York Fed President John Williams and Fed Board of Governors Vice Chair Richard Clarida - laid out the case for quick action by the central bank to support the us economy.
The comments by Williams made it a virtual certainty the Fed would cut interest rates by 25 basis points (bps) at its July 30-31 policy meeting and also revived expectations of an even deeper 50 bps reduction. "When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first signs of economic distress", he declared. Clarida was discussing the current economic outlook in a television interview. But the context of his remarks - he was speaking near the start of the Fed's customary premeeting quiet period, which begins Saturday - fueled an unintended market reaction.
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"Signals were that we were highly likely to ease at the July meeting - so now that's all been priced into the market - so if you try to take that out I think it would be very hard at this stage", Bullard said on the sidelines of a conference at Columbia University.
Williams has "reassured markets that his comments were academic and not about immediate policy changes and the dollar has modestly recovered as a result", said Joshua Tadbir, corporate hedging manager at Western Union Business Solutions. "It was not about potential policy actions at the upcoming FOMC meeting", the statement said.
As Neil Dutta, head of economics at Renaissance Macro Research, said in a note to clients: "We have not seen anything like this before and honestly, we are not sure what they were thinking". "Of course the market would latch on to a speech like this - given focus and timing - right before the July confab". "Disinflationary pressures, if anything, are more intense than I thought six weeks ago". Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. A rate cut could lift inflation expectation according to him. "His first statement is 100% correct in that the Fed "raised" far too fast & too early".
A spokeswoman for the New York Fed declined to comment Friday on the president's tweet.
While China is the most publicly visible focus of this war, it is by no means the only target. The rate is now in a range between 2.25% and 2.5%.
European shares ended only marginally higher on Friday as worries about the stability of Italy's government dented optimism from renewed signals the U.S. Federal Reserve will cut interest rates soon. "Also must stop with the insane quantitative tightening". In both of those cases, Fed officials initiated what would become a series of three rate cuts, in quarter-point intervals, over a few months.