Bond Investors: Here's What Could Trigger Monetary Stimulus

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Think auto prices. 

Rate Cut Trigger?

"The trigger for rate cuts is going to have to be those inflation targets coming down a little bit, and that could happen in the car sector" said Danielle DiMartino Booth, CEO of Quill Intelligence and former adviser to the president of the Dallas Federal Reserve. "We're seeing used car prices really start to be a drag." She added, "things that were making the economy juice in 2018 are starting to be a drag in 2019." 

Stock investors right now want to see monetary stimulus, or the lowering of interest rates, as the market correction in the end of 2018 was all about slower global economic growth after all. "A lot of investors right now on [Wall] Street are clamoring for stimulus to happen, like, tomorrow," DiMartino said. 

Not So Fast

But that may not happen just yet, as the Fed will have to complete its quantitative tightening plan first. Inflation came in at 1.9% on the latest reading, not far from the Fed's target rate of 2%. The U.S. economy has certainly slowed in the past several months, but that trend itself may continue to unfold at a relatively slow pace. 

Safe Assets

"If we see continued slowing in the global economy, there will always be a flight to treasuries, and if we see continued global slowing,  that will compel the Fed to move quicker to ease policy, which will make those bonds attractive," DiMartino said. While bond prices have already risen considerably in 2019, pushing the 10-year treasury yield to 2.49% from 2.62% in January, stimulus is not priced into the treasury market at the moment. 

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