Because “the coronavirus poses evolving risks to economic activity,” despite the “strong” fundamentals of the US economy, and despite stocks being off just 7.8% from all-time highs, the Fed’s FOMC announced during trading hours this morning, following the G-7 conference call, that it had voted unanimously to cut the target for the federal funds rate by half a percentage point to a range between 1% and 1.25%: Click for full article.

In recent testimony to Congress’s Joint Economic Committee, Jerome Powell stated:

“The debt is growing faster than the economy — that’s unsustainable. It’s not the Fed’s job to say how the government should cut the deficit, but we need to get the economy to grow faster than the debt. Otherwise, future generations will be paying more of their taxes to cover the government’s debt costs than for other things like health care, etc.

I think the new normal now is low interest rates, low inflation and probably lower growth. Even with the lower interest on its debt, the government still needs to reduce its budget deficit.” 

Interestingly, these were not the first time we heard these words. In 2012, then-Fed Chair Ben Bernanke told Congress:

“Rising federal budget deficits are posing a significant threat to the U.S. economy and are likely to cause a crisis if not brought under control. Having a large and increasing level of government debt relative to national income runs the risk of serious economic consequences. Over the longer term, the current trajectory of federal debt threatens to crowd out private capital formation and thus reduce productivity growth.”

Looking back now, it was clear that Bernanke was correct. Over the last 30-years, the rising level of Federal Debt relative to National Income has retarded Productivity in the U.S. CLICK for complete article

The US treasury yield curve, as represented by the spread between the 10-year and two-year bond yields, is currently the flattest since December 2018.

As of writing, the spread is seen at 0.097 basis points – down more than 17 basis points from the high of 27.5 basis points seen on July 18.

Notably, the benchmark 10-year yield, which stood at 2% on July 31, fell to 1.59% on Wednesday and is now trading at 1.70%, meaning the yield is down 30 basis points on a month-to-date basis.

Investors have rushed for the safety of government bonds amid escalating US-China trade tensions….CLICK for complete article