I waited for the Federal Reserve’s decision, as they kept rates unchanged as expected. Believe it or not, after President Trump made a historic deal with the European Union (EU), the metrics presented this morning saw U.S. Gross Domestic Product (GDP), a measurement of economic growth, come in at an annualized rate of 3% YoY. It was much higher than the forecast of 2.4%. Furthermore, ADP employment, a measure of private sector employment, increased by 104,000, exceeding expectations of 78,000. 

The Administration wanted the Federal Reserve to lower interest rates because there had been exceptional growth without the spiked inflation they envisioned. As a result, they remained inactive, being overly defensive by leaving rates heightened. Ultimately, consumers and taxpayers pay higher premiums on everything. Could the end of the Federal Reserve and the emergence of an alternative monetary system be in the works? The power play continues. 

The August 1st deadline is quickly approaching as countries are lining up to make deals with the United States for continued access to their 350 million consumers. The EU capitulated, probably accepting the most lopsided trade agreement ever. The 15% tariff on European imports was determined to be reasonable as it includes a combination of commerce, security and technology, which is interwoven; therefore, to affect one, it would affect all. Meanwhile, American exports will have 0% applied. When all said it couldn’t be done, it was. The Little train that couldn’t, actually did!

The focus now is on Canada, the largest and most intertwined economy with the United States. Consequently, little is being said, but it’s like watching “Let’s Make a Deal”, hosted by Carney as Monty Hall. The concern is that his elbows-up campaign is all bark and no bite, putting real Canadian businesses in jeopardy. Carney, in my opinion,  has only become submissive rather than the 5-Star general needed. Unless the supply management system is rescinded, the 35-50%, plus reciprocal tariffs, will kick in, affecting the cost of living for all Canadians.

Due to the uncertainty and the reduced threat of a global trade war, the Bank of Canada (BOC) also decided to leave the bank rate unchanged @ 2.75%. This is the level banks borrow from the BOC, then their spread is applied to consumer loans. The most profitable Ponzi scheme known to exist, with the taxpayer always holding the bag when things go astray. 

Nonetheless, the USD Index catapulted above the 99.50 level. A refreshing sign of accomplishment for deals well done. The crowning jewel of the American economy will be the reduction in interest rates. Once the trade frameworks are in place, and barriers to entry into global markets have been eliminated, it will be the reduction in the value of the USD which will provide the competitive alternatives. The foreign exchange variable either makes the cost of goods too expensive or cheaper; therefore, an equilibrium will naturally occur. This is a good time to consider hedging some of your future revenue when spikes occur.

Once the floodgates of cheaper money are opened, financial liquidity will rise, as will inflation, but it should be offset by the cost of energy to remain stable. Ultimately, consumers will have much more choice, and the crème de la crème of products will be available for the market to decide.

The market reaction has been a little subdued as the war of words will continue. Equity markets remain stable, already looking forward to September. If I were a betting man, I would invest in American equities as the GDP growth rate could easily double from present levels. Consequently, CAD is diving toward the 0.72 cents level as the air was very thin above 0.73 cents, and Canadians were experiencing nosebleeds, thanks to incompetence.