On Aug. 1, the US Federal Reserve as expected cut its policy rate by 25 basis points to a range between 2% to 2.25% and Chairman Jerome Powell communicated that policy makers did not necessarily viewed this cut as the start of new easing cycle.
Investors were particularly disappointed by Powell's policy comments: risk asset prices began to fall, government bonds rallied, and the yield curve flattened and eventually inverted. Inflation-linked instruments started to retreat as well, with short-term inflation expectations tumbling the most, while longer-term projections slipped slightly below to the targeted average level of 2% per year. It is also clear that the markets do not see the trade war as having a lasting net inflationary effect.
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Note: The next edition of the LGT Beacon is scheduled for September 2019.