Trade developments continued to absorb attention during June. Having imposed tariffs on Mexican imports in May President Donald Trump suspended them “indefinitely”. President Trump and China’s President Xi Jinping announced that trade negotiations would resume.
- The Dow had its best June since 1938
- Speculation mounted that the Fed may cut interest rates
- The relationship between the White House and the central bank continued to sour
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Trade developments continued to absorb attention during June. Having imposed tariffs on Mexican imports in May – tariffs that were set to continue to rise every month until October – President Donald Trump announced that the tariffs would be suspended “indefinitely” following the news that Mexico would tackle the problems of migration and human trafficking. Meanwhile, at the G20 summit in Japan, President Trump and China’s President Xi Jinping announced that trade negotiations would resume and the US decided not to raise tariffs on a further US$325 billion-worth of Chinese goods.
“An ounce of prevention is worth a pound of cure” (Fed Chair Jerome Powell)
During June, the Dow Jones Industrial Average Index rose by 7.2%, the S&P 500 Index climbed by 6.9%, and the Nasdaq Index rose by 7.4%. According to S&P Dow Jones Indices, the S&P 500 Index had its best June since 1955, and the Dow Jones Industrial Average Index had its best June since 1938. The best-performing S&P sectors during June were materials, information technology and energy, whereas real estate and utilities performed relatively poorly.
Although the Federal Reserve (Fed) maintained its key federal funds rate at 2.25% to 2.5% during June, speculation that policymakers might move to cut rates continued to mount. Within the Federal Open Market Committee (FOMC), one member voted for a reduction. Pledging to “act as appropriate to sustain the expansion”, the Fed said that uncertainties about the outlook had increased, modifying its previously “patient” stance.
Separately, in a speech during the month, Fed Chair Jerome Powell warned: “The picture has changed … cross-currents have re-emerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy”. His words – alongside the statement “An ounce of prevention is worth a pound of cure” – compounded speculation that the central bank is contemplating a cut in interest rates.
The relationship between the Fed and the White House continued to sour, as President Trump tweeted: “A Federal Reserve that doesn’t know what it is doing – raised rates far too fast” … “They stick, like a stubborn child, when we need rates cuts & easing, to make up for what other countries are doing against us. Blew it!” Notwithstanding the President’s words, Chair Powell insisted that the Fed remains independent and “insulated from short-term political pressures”. The FOMC’s next meeting will take place at the end of July.
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