What Will Be The Quantum Of Fed Rate Cut?

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00:00Seth R. Freeman is joining us. He's Managing Director at B Raleigh Advisory Services.

00:04Seth, great to have you on the show. Yeah, while we try and, you know, break down the

00:09picture coming in from the jobs data, is it fair to say that while the numbers itself

00:15have disappointed the street, but when you go into the details, it's not necessarily

00:20yet pointing to a very big slowdown in the US economy? Is that how you're reading it?

00:25You do have to stratify the numbers and look at the different, you know, the makeup of

00:32the index. The real issue, though, is that we should probably be expecting this with the

00:40summer. It was, you know, August, July, and it was better than the previous month. So it's not

00:50not looking like a slowdown per se, but there's other pressures. Consumer spending and consumer

00:56credit is getting pushed about as high as it's been in a long time. And consumer spending is

01:04very low. And this is going to have a real effect on the US economy.

01:10With the current backdrop and all eyes on the much anticipated rate cut by the Fed,

01:15in your opinion, do you think it's going to take the Fed to cut rates by 50 basis

01:20points to bring the risk on trade back in fashion?

01:26Well, this is the big question. And whether they're going to go with,

01:30you know, 25 basis points or 50, there's a lot of guessing and postulating about that.

01:38I think the Fed's going to be conservative and just look at a quarter point,

01:4425 basis points, and then see how it's looking for the October meeting.

01:52I mean, and, you know, unique circumstances of 2020, when the economy was shut down,

01:56usually the Fed has not done 50. So if the Fed doesn't do 50 and does 25, as you said,

02:00and remains conservative, is that a negative for risk assets? Because markets currently are

02:04worrying about growth. And but if growth was not a worry, then the Fed action wouldn't have

02:11happened. And that might also have been construed as a negative. So my question is,

02:14if it's only 25, is that going to be negative for equity markets?

02:20I think it will be fairly neutral, because I think a lot of this has already been priced in.

02:28And we've been we've been seeing these movements in the market. You know, although it's the S&P

02:35has reached some historic highs over the last couple of weeks.

02:39I think a lot of it's priced in already, frankly.

02:43Seth, just in terms of emerging markets impact, what is your assessment?

02:49Because the indications right now is that at least as far as the US economy is concerned,

02:53the pain will continue. And then of course, we'll see what the Fed rate action is.

02:57But what is the flow through as far as emerging markets, especially like India are concerned?

03:02Yeah, the pivot is always higher growth rates, and the impact of lower US rates on currencies.

03:15And I would say that this is probably positive. And I'm constantly positive, I guess,

03:22about emerging markets and India. But we still have to look at, you know, country specific

03:28situations. For example, the real estate industry in China is a disaster. And that's going to have

03:36a big overhang in the Chinese market for quite a long time, in addition to, you know, basic

03:42political problems. But I think this is quite favorable for India. The one thing, though,

03:49that hasn't been talked about too much is, you know, should Trump win? And should he begin

03:58imposing the kinds of sanctions he's talking about? What the impacts might be both in the US

04:05and for exporting countries?

04:09We've talked about risk assets, a quick word on gold. It's up 20% for the year,

04:16the much expected rate cut is only a few days away. Would you go long on gold at current prices,

04:24expecting further gains? There is some consolidation that we're seeing right now.

04:28So opportunistically, it could be a good trade.

04:32Well, lower interest rates is generally positive for gold because it costs money to own gold. So

04:39I would say that we're probably long, yes, for the long term.

04:44In the mid, short to midterm, I think it is positive for gold.

04:49Right. Thank you very much, Seth. Great chatting with you.

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