Fed officials continue to calm themselves and financial markets, despite the fact of trade standoff as the US economy feels pretty good
Such thoughts are presented by all heads of federal banks, without exception, including Fed Chairman Jerome Powell. Thus, head of the Federal Reserve Bank of Richmond, Tom Barkin, echoed his colleagues, discussing the state of the American economy and the prospects for interest rates on Wednesday. He noted that there is "a sense to maintain patience on the prospect of a change in rates given the current economic climate in the United States," that there is no reason for either raising or lowering them. At the same time, he reported that the economy is healthy and economic growth "remains healthy." In general, everything is good and just need to wait.
Indeed, the latest data shows the annualized GDP growth to be 3.2%, the inflation rate at a comfortable level of 2.0%, and the unemployment rate of 40-year low at 3.6%.
The numbers are really impressive and the statements of officials that the trade war with China will not cause significant damage to the country and probably reassure someone, but not the financial markets. Bidders are still cautious. They note that the main indicators of the state of the American economy are clearly showing signs of a slowdown and added yesterday's retail sales data for April, which not only fell in growth but drop by 0.2%. The core retail sales index fell to 0.1% from 1.3%, while it was expected to decline in growth to 0.7%.
In addition, the second quarter GDP estimate for the Atlanta Federal Reserve Bank, which shows a drop in GDP growth in the second quarter to 1.1% from 1.6% makes one think. An important point is also the dynamics of real private investment within the country, which decreased in the second quarter from 3.2% and -3.7% to 3.0% and -5.7%, respectively.
Given the lack of clear certainty in the future, the business will not be active in investing in its own business and a possible failure in negotiations with the Chinese will be a catalyst for negative processes in the American economy, contributing to its inhibition. While the Federal Reserve, investors and financial markets are actually frozen in anticipation of a denouement, which is still not coming. On this wave, there is high volatility in the stock and commodity markets but the foreign exchange market seems to be quite still for a long period of time to remain "boring" because of the pause, which the world central banks actually occupied and not only did they watched everything.
Forecast of the day:
The AUD/USD pair remains in a downtrend in the wake of uncertainty as a result of trade negotiations between the US and China. We expect the continuation of a smooth decline in prices to a local minimum of 0.6825 after overcoming the mark of 0.6900.
The NZD/USD pair is also trading lower amid the lack of positive news on the negotiations between the Americans and the Chinese. We expect the continuation of a smooth decline in prices to 0.6525 and then to 0.6500.
