Right out of the gates in his congressional testimony this morning Fed Chair Jerome Powell offered up precisely what the market wanted; a cautious view of present general conditions that he hints will justify rate cuts to come. Thus, equity futures went from notably red to notably green in an instant.

The fundamental question for me being, other than further inflating asset prices, what indeed does cutting interest that are already near record lows do for the economy? Will it inspire a new round of transferring bank reserves into the hands of borrowers who’ll spend their newly acquired debt in the real economy? Well, again, lending rates are already the definition of attractive, so, therefore, the above questions are indeed begging!

Typically, given the weakening in much of the latest data, particularly across the industrial complex, I’d report that a rate cut right here could very well ignite animal spirits and boost capital spending, etc., to the point where, yes, at the margin a rate cut could help. But, here’s the thing, the weakening data has nothing to do with too-high interest rates/tight money conditions (not in the least!), and, therefore, making easy money easier doesn’t at all help the fundamental problem. In fact, alas, it could ultimately exacerbate the comeuppance (steep correction or bear market) that’s surely in store if indeed the fundamental problem isn’t resolved in the relatively near future. 

That “fundamental problem” being the vast and serious disruption of supply chains, global trade uncertainties, etc., — the trade war, that is; which is virtually certain to reflect quite negatively on earnings reports/outlooks to come over the next several weeks.

So, while we can enjoy this rally while it lasts, we should definitely curb our enthusiasm until the trade war clouds clear.