MONEY MARKET | JULY 2019

Taxable money market
commentary

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Patricia Larkin

Chief Investment Officer,
BNY Mellon CIS

The job market made a dramatic recovery from May’s much weaker-than-expected gain of only 72,000. The June figure showed 224,000 jobs were added during the month, significantly reducing fears of a sharp slowdown in economic activity. Although manufacturing and housing indicators have shown some slowdown in the second quarter, consumer spending has remained strong as we enter the second half of the year.

Despite solid economic performance, Federal Reserve (“Fed”) officials have telegraphed that they are inclined to reduce the overnight federal funds rate when they meet at the end of July. Fed Chair Jerome Powell has stated that trade frictions and slowdowns seen in foreign economies have strengthened the case for an “insurance” cut in rates. Mr. Powell basically said that an ounce of prevention is worth a pound of cure.

The likelihood of many of these overarching issues being resolved in the short run is low. Trade negotiations, even in the best of circumstances, are extremely complicated and take time to hammer out and the resulting economic effects take even longer to materialize. On the political front, Europe remains mired in Brexit gridlock. The probable election of Boris Johnson as prime minister does raise the odds of a no-deal Brexit with unknown economic and social ramifications, both in the UK and throughout Europe.

The real question now becomes how much “insurance” does the Fed think it needs? While a 25-basis-point cut in July is almost a given, the path from there is much less clear. The economy is still showing moderate growth, unemployment remains quite low, inflation at the consumer level is not that far from the Fed’s 2% target and the stock market is at all-time highs. The Fed does not want to be seen as bending to the political winds of the day, nor does it want to be bullied by the markets into further cuts than needed. Time will tell if both the stock and bond markets have priced in more than the Fed decides to deliver.

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Views expressed are those of the advisor stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change.

This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular investment, strategy, investment manager or account arrangement. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. BNY Mellon Investment Adviser, Inc. and BNY Mellon Securities Corporation are companies of BNY Mellon.

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