The Fed's Rate Cut Won't Save the U.S. From a Trade War

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Rate cut or not, the U.S. and China remains in a trade war. 

While cutting rates never hurts demand -- it can only help -- the trade war isn't just hurting demand on the basis of tariffs, but it is causing business uncertainty. That's not something interest rate cuts can solve. 

The News

The Fed cut interest rates by 25 basis points Wednesday afternoon, and gently implied there may possibly be one or two more cuts in 2019. Stock investors wanted a clear indication that there will indeed be additional rate cuts, an indication they did not get. Stocks fell Wednesday, but are rebounding slightly, with the Dow Jones up 0.03% in premarket trading Thursday. The 10 year treasury has hovered around 2.02%, where it sits Thursday. 

Rate Cut Inappropriate?

Before the Fed's decision to cut rates, Tendayi Kapfidze, chief economist at LendingTree told TheStreet "the things that they're [the Fed] trying to fight with this rate cut are not appropriate for monetary policy to be fighting, which is namely the trade war inducing a decrease in confidence among corporate CEOs." 

Kapfidze's perspective isn't a one-off. 

"A 25 bps rate cut won't be able to solve business uncertainty caused by the trade war with China," said Chris Zaccarelli, chief investment officer of Independent Advisor Alliance. 

While lower rates will provide some support level for economic demand, companies will likely be tepid about increasing capital expenditures, as the threat of more tariffs would hurt demand for goods and services.  

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