The Fed had their meeting on Wednesday, July 31st, and they did not disappoint the markets. The markets anticipated a quarter-point rate cut, and the markets received their cut. However, the markets were not satisfied with just a twenty-five basis point cut.
Just before the Fed made their announcement, the Chicago Purchasing Managers Index released the manufacturing economic data for the economy for July, and it wasn’t pretty.
The index fell from 49.7 in June down to 44.4 for July. The most significant monthly drop in 30 years. When the Chicago PMI falls below 50 points, it signals that the economy is contracting.
Considering that the Chicago PMI fell from 49.7, which already signals a contraction, down to 44.4, indicates that the economy is not doing well at all. Not to mention the yield curve on US treasuries is still inverted.
Bond yields continue to fall as more investors rush into bonds as they expect a recession coming.
This Rate Cut Won’t Be the Last
Donald Trump may have already ensured that more rate cuts are coming after he announced that he would be raising more tariffs on China. Due to bad economic data, the Fed will be forced to continue to cut rates. Eventually, the Federal Reserve will lower interest rates back to zero as the economy continues worsens.
Quite frankly, I don’t think even zero interest rate will be enough to save this bubble economy. The Federal Reserve is going to have to reintroduce quantitative easing to keep this bubble afloat.
Once QE arrives, the market will realize that the government will continue to monetize the debt to no end. In other words, the US will never pay down or off its liabilities. Furthermore, the Federal Reserve will never shrink its balance sheet.
The US dollar, along with many other global currencies, will collapse. The cost of living will skyrocket, leading to very high rates of inflation to possibly hyperinflation in many countries, including the United States.
What does This Mean for You?
It’ll be more accessible than ever to borrow money since interest rates are falling, however; now is not the time to accumulate debt. As the economy weakens, more layoffs and job cuts will occur.
As an individual, you’ll have to consider the safety of your job. Ask yourself what the likelihood of you receiving a pink slip is? If it’s high, then start saving money and prepare for a possible layoff or even pay cut.
Also, think of the possibility of the cost of living going up. Prices indeed tend to fall in a recession. However, if the Federal Reserve initiates Quantitative Easing, we will likely see a rise in our cost of living.
Finally, if the US dollar begins to fall along with all the other currencies in the world, there’s only going to be one safe-haven, and that’s is gold or silver. Consider buying some gold and silver to hedge against the coming inflation.
Another good idea is to purchase pre-1982 copper pennies or even the five-cent nickel. Copper maybe not be as good as gold or silver, but it will be better to own than US dollars or any other currency.
Get prepared, because this rate cut won’t be the last. There will be more rate cuts coming, and QE is just around the corner, neither of which will be beneficial for the average Joe.