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As trade tensions between the United States and China escalate, Monday's report by the U.S. Department of Commerce may provide more justification for the Federal Reserve to cut interest rates again next month.
Federal Reserve Chairman Powell said at a global central bank meeting last week in Jackson Hall that uncertainty in trade policy is "one of the factors contributing to the global economic slowdown and the weakening of U.S. manufacturing and capital expenditure". Although Powell called the U.S. economy "in good shape", he reiterated that the Federal Reserve would "act as it sees fit" to keep on track the longest economic expansion in history.
The Federal Reserve cut short-term interest rates by 25 basis points last month for the first time since 2008, citing trade tensions and a slowdown in global growth. Financial markets have fully absorbed the possibility that the Federal Reserve will cut interest rates by another 25 basis points at its policy meeting on September 17-18.
"The report reiterates that manufacturing activity and corporate investment remain weak, consistent with global weakness, as trade concerns put pressure on manufacturing activity," said Veronica Clark, an economist at Citigroup in New York. "Because downside risks remain, we still expect the Federal Reserve to cut interest rates by another 25 at its September meeting. Base point."
The U.S. government said orders for non-defense capital goods excluding aircraft grew by 0.4% last month, driven by strong demand for electrical equipment, appliances and spare parts. This is the core capital goods order, which attracts much attention because it reflects the enterprise expenditure plan.
Core capital goods orders were revised down to 0.9% growth in June, up 1.5% from the previous value.
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