Most on Wall Street expect the Federal Reserve to cut the federal funds rate by 25 or 50 basis points on July 31. I say this is a dumb move as the FOMC continues “quantitative tightening.”
I say wait until the fourth quarter after QT ends. The Fed will drain $105 billion from the banking system in the third quarter.
Last week the Federal Reserve drained another $7 billion from the banking system. The balance sheet totaled $3.81 trillion on July 17, down $692 billion since the end of September 2017.
Fed Chairman Jerome Powell has a goal to shrink the balance sheet to $3.5 trillion. When quantitative tightening ends at the end of September, he will likely be $200 billion shy of his goal.