Trade confusion upending Wall Street investment playbooks

As Federal Reserve Chair Jerome Powell on Wednesday described why the central bank’s interest rate cut should not be seen as the start of a lengthy easing cycle, the U.S. stock market was losing value at a rate of over $25 billion a minute.

At issue was one of Wall Street’s oldest play books:

“Don’t fight the Fed.” Investors have long taken cues to buy or sell equities from the Fed’s decisions to revive or cool the economy by adjusting short-term interest rates.

Yet for the first time since the financial crisis, voting members of the U.S. central bank appear to be at odds over their interpretation of financial data and the Fed’s responsibility to act, leaving investors guessing as to what the Fed is basing future rate decisions on.

President Donald Trump, who has been lambasting Powell about not lowering interest rates fast enough, unexpectedly announced an additional 10% tariff on Chinese goods Thursday, possibly putting additional pressure on the Fed to cut rates aggressively.

Powell has repeatedly said the central bank makes decisions independently from markets and the White House. On Wednesday, he described the widely-telegraphed 25 basis point rate cut as a “midcycle adjustment” in response to signs of a global slowdown, simmering U.S. trade tensions and a desire to boost too-low inflation, before leaving the door open to additional cuts depending on future economic data.

• Reuters