Even If the Fed Cuts Rates, It Could Be Too Late to Stop a Recession

via CNBC:

  • “Fed could cut as soon as July but it may not halt slowdown/recession,” Morgan Stanley’s equity strategist Michael Wilson said in a note to clients Monday.
  • The economy is already facing some “very real macro risks” including weak jobs data, low inflation and escalating trade tensions, Wilson said. The Fed easing over the summer likely won’t salvage the economic slowdown.
  • On Friday, May payrolls came in lower-than-expected and the markets rallied in hopes that the Federal Reserve would start a period of easing as soon as the summer.

 

Even if the Federal Reserve does what the market wants and lowers interest rates this summer, things may already be too far gone, according to Morgan Stanley.

“Fed cuts may come too late,” Morgan Stanley’s equity strategist Michael Wilson said in a note to clients Monday. “Fed could cut as soon as July but it may not halt slowdown/recession.”

The economy is already facing some “very real macro risks” including weak jobs data, low inflation and escalating trade tensions, Wilson said.

The market is expecting a rate cut by July by the Fed in response to diving bond yields, volatile stock markets and some sings of weakness. On Friday, May payrolls came in much lower-than-expected and the markets rallied in hopes that the Fed would start cutting as soon as July.

Paired with the “falling rate of inflation and the inability to hits its 2 percent goal” and trade tensions weighing on business confidence, the Fed’s rate cut won’t halt a weakening economy, Wilson said.

Morgan Stanley changed its forecast for global growth to “stagnation” through the end of the year instead of a “continued recovery.”

Investors should stay defensive, despite a more dovish Federal Reserve, Wilson said.

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