It’s time to act

In July, Federal reserve officials became more definitely to speak about what interest rates should be reduced. And I must say, they had real reasons for such a decision.

First and foremost, it should be noted that the may-June retail prices, according to the Ministry of trade, increased by 0.4%. It is more than 0.1% of the index, which is predicted by experts, but should take into account the fact that during this period, gasoline prices have fallen by 2.8%. In General for the II quarter of the size of consumer spending has increased, as reported by the firm Macroeconomics Advisers, by 4.3% yoy, which was the maximum, starting from 2014.

At the same time, the volume of industrial production in may-June grew by only 0.4%, reflecting the uncertainty in trade and the decline of demand on foreign markets. However, reducing the level of confrontation between the US and China gives reason to believe that the situation will improve, especially in light of the large number of jobs created in June.

Taking the decision to adjust the rates at the fed are likely to take into account two factors.

First of all, a new aggravation of trade relations and the instability in the global economy can cause damage that will be visible only after some time, so it would be logical to lower the rates in order to create more favourable conditions or, if necessary, to return to their former level.

Second, inflation stays below 2%, and increases the risk that it will affect the degree of optimism of consumers, so that the reduction in rates is hardly the only measure, which would “spur” the growth of prices. Besides all the above, financial markets do not show anxiety, and the creation of new jobs continues, which also gives grounds to the Central Bank finally abandoned the role of an observer.
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