MARY REICHARD, HOST: Coming next on The World and Everything in It, the Monday Moneybeat.
NICK EICHER, HOST: As expected, the Federal Reserve cut interest rates last week. In making the move, though, the central bankers showed how divided they are. One member of the Fed board said the quarter percentage-point cut should’ve been bigger, another said it wasn’t even necessary.
Decreasing interest rates is meant to stimulate economic growth. But with it comes the risk of triggering inflation, and the Fed aims to steer a middle course between growth and too much inflation.
But economies are complex and even trained eyes misread economic data, which explains the divisions at the Fed.
President Trump weighed in immediately. He called the modest cut a failure of Fed chairman Jay Powell: no guts, no sense, no vision, he said on Twitter. The Wall Street Journal counted 30 total social-media jabs by the president against the Fed since July.
In an interview on Fox, though, he said Powell’s job is safe.
For Powell’s part, he seemed to suggest the economic uncertainty the Fed is trying to remedy is President Trump’s fault.
Well, he didn’t say it as bluntly as Trump might’ve, but Fed chairmen are nothing if not diplomatic. That Wall Street Journal article also counted up the number of times Chairman Powell talked about the president’s trade war with China: 20 times in a single news conference called to explain the reason for the rate cut.
REICHARD: President Trump shrugged off any sense that he feels political pressure to sign a trade deal with China. He did say he thought it would help his re-election efforts, but he contends no deal is better than a bad one.
Speaking of China, here’s how on-edge Wall Street seems to be about the trade war: News of canceled meetings sent the American stock market down and all the major indexes blew their three-week winning streak.
A Chinese delegation canceled a planned trip to farms in Montana and Nebraska to talk agriculture. Negotiators went back home to China instead, and traders evidently interpreted the news that peace talks aren’t going well. American and Chinese negotiators had been in informal talks to lay the groundwork for more formal negotiations next month.
So for the week, the Standard & Poor’s 500 lost half a percentage point in value, the Dow Jones Industrials more than a percentage point. The Nasdaq fell seven-tenths, and the Russell 2000 shed 1.2 percent.
EICHER: Let me go back to the subject of interest rates. When we say the Fed takes an action one way or the other, that action is related to the “federal funds rate.” This is not the rate you and I get when we take out a loan.
Technically speaking, the fed-funds rate is the interest rate that banks and credit unions charge to lend reserve balances overnight to other banks and credit unions. These are the very best customers and the lowest-risk loans.
But it is the starting point for the way in which the market sets business and consumer interest rates.
Those rates have been dropping and last week the average 30-year mortgage was below three-and-three-quarters, almost a full percentage point less than a year ago. That makes home-buying less expensive, and it’s led, finally, to some recovery in housing. That’s been a slumping sector of the economy the last year and a half.
The National Association of Realtors reported last week, home sales rose in August to the best level since March 2018. It’s now 2.6 percent better than the same time a year ago.
Probably the biggest problem in housing right now is supply, and that’s pushing prices up. But at least the cost of borrowing is less.
And that is today’s Monday Moneybeat.