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No rescue party: Trump and Wall Street has been sent a ice-cold warning

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The US Federal Reserve has sent markets a sobering message. It will not bail out the Trump administration as the trade war expands; nor will it come to the rescue quickly if Wall Street wilts.

Markets have sent a blunt warning by the Fed. Credit:AP

The proverbial "Fed Put" is a long way out of the money at this juncture. The outlook for the US economy will have to take a nasty turn before the Powell Fed cuts interest rates or halts quantitative tightening altogether.

"The hurdle for cuts is very high," said Tom Porcelli, US strategist for RBC Capital and a former Fed official.

The Fed minutes released late on Wednesday are something of a shocker for investors who thought they had a monetary comfort blanket for the rest of this year. Futures contracts show markets have been pricing in 50 basis points of rate cuts.

The text revealed that "many" members of the voting committee had dismissed the recent soft patch in inflation as "transitory" and largely caused by "idiosyncratic factors". This amounts to a warning by the world's hegemonic central bank that it may raise rates. It is an ice-cold douche for fragile markets.

Markets reacted with alarm on Thursday. The Dow Jones fell 1.1 per cent and the S&P 500 slid by 1.2 per cent. The US dollar index (DXY) climbed to a two-year high of 98.2. This has set off further tremors through Asian bourses already reeling from the contraction in global trade.

The Shanghai composite index is now down 15 per cent from highs just a month ago. The MSCI index of emerging........

© The Age