Market Updates

• The Fed announced a widely expected 25 basis point cut in the fed funds rate to a new range of 2% to 2.25% which helped push Treasury yields lower. The two-year Treasury note declined 15 basis points to a yield of 1.71% or 54 basis points below the upper range of the new fed funds rate.

• The Fed’s tone was cautious regarding future cuts as Chairman Powell described the cut as a “mid-cycle correction” and not the start of a lengthy policy easing shift. The market disagreed with Powell’s assertion as yields declined, increasing the market’s expectation that future yields will be lower than today’s yields. The market is now pricing in a 100% probability of another rate cut at the Fed’s September meeting.

• President Trump announced another increase in trade tariffs on an additional $300 billion of Chinese imports beginning September 1. The announcement helped the stock market decline 2.6% as the Dow lost 707 points over the week. The expected retaliation by the Chinese could create additional financial turmoil which would pressure interest rates lower and most likely put added downward pressure on the stock market.

• The employment report released on Friday increased by 164 thousand in non-farm payrolls which matched expectations. The report was mostly positive but continued to display deceleration in growth from 2018. Non-farm payrolls grew at an average rate of 223 thousand in 2018 versus just an average of 165 thousand in the first seven months of 2019.