The US Federal Reserve has made its widely anticipated rate cut this week with the news being confirmed Wednesday evening following the FOMC meeting. The rate cut of 25 basis points or ¼% is the third highest cut of the last four months.
The cut comes as the US economy continues to struggle and has been made in order to jumpstart spending and output. Despite President Trump’s campaign promises while on the 2016 election trail to breathe new life into America’s factories, this week saw the manufacturing sector slump to its lowest share of the US economy for 72 years. Manufacturing accounted for just 11.1% of American Gross Domestic Product (GDP) in Q2, which is the smallest figure since 1947 and a .1% decline on Q1.
The ongoing trade war with China has been blamed for choking the sector. Blomberg’s Reade Pickert, explains “While manufacturing has added about half a million workers on the whole since Trump took office, states like Pennsylvania and Wisconsin that helped him win in 2016 are now losing factory jobs amid a persistent trade war with China and a weaker global economy…
“The administration’s protectionist policies have disturbed companies’ supply chains, stymied investment and slowed hiring. Tariffs on billions of dollars worth of Chinese products helped tip the manufacturing sector into recession earlier this year.”
Data expected later today (Friday) from the US is also predicted to show a decline of 55,000 manufacturing jobs due to a strike at General Motors.
To this backdrop, the Fed is also wrestling with declining consumer confidence and a pulling back on retail spending just as the sector would expect shopping to ramp up for the holiday season.
So, while Wednesday’s rate cut was pretty much inevitable in order to stimulate spending, it’s good news for gold. If you heeded our advice to buy now in our mid-week bulletin, you’ll already be benefitting as the rate cut immediately sparked modest price gains.
Don’t worry if you didn’t buy mid-week; if employment data is as poor as expected gold should gain further. Buy now to benefit.