Economics: On A Dangerous Path

 (Drivebycuriosity) - The Fed is walking on a dangerous path. Yesterday the monetary authority cut her interest rates, the second time this year, mentioning economic risks. This step is overdone, there is no need for more economic stimulus. The US economy is doing fine driven by an advancing service sector and a prospering technology industry. Jobless claims are at all-time-lows and salaries are growing fueling solid retail sales.

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Inflation seems to be subdued today but the core inflation (without energy & food) is already accelerating to plus 2.4% (from 2.2%) thanks to climbing healthcare cost and price hikes caused by the trade war. In the moment the official inflation rate is constrained by relative cheap oil which costs 20 % less than a year ago. But in winter the comparing oil prices (from winter 2018) will fall to about $52.  If oil does not get about 10% cheaper in the coming months then oil prices will add to the inflation rate. Then the Fed may need to respond by hiking her interest rates again - which could cause the next recession.    

The Fed is kowtowing to President Trump and is trying to repair the damages done by his trade war against the rest of the world. The Fed`s submissiveness might give the President the illusion that his trade war comes without cost and he might be inspired to expand his war.