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How does Mizuho view the proposed July interest rate cut by the Fed?


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With the Federal Reserve all but certain to cut interest rates at its policy meeting at the end of July, Steve Ricchiuto, the chief economist of US markets at Mizuho Americas is one of the critics against a rate cut. While the Fed has cited the ongoing trade conflict with China, falling consumer inflation and other headwinds that could threaten the country’s eleventh successive year of expansion as the reason to cut rates, Steve has joined a few other analysts in opposing the view. He asserts that the Fed would be aggravating any forthcoming economic slowdown if it goes ahead and cuts the already low-interest rates.

Ricchiuto insists that the last three recessions in 1990-91, 2000-01 and 2007-09 were caused by credit bubbles due to the careless policies by the Fed, which it is about to repeat. In his research note to clients, he argues that a rate cut would lead to unnecessary risk-taking by borrowers and deepen the next recession. He says that while a recession is good for an economy as it gets rid of the dangerous excesses during an expansion, forced credit structuring would worsen the recession and the economy would need more time to recover.

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