Fed Chair Jay Powell. Photo: Photo: Mark Wilson/Getty Images

Top Fed officials look to be setting the market up for interest rate cuts, just months after reversing course from planned rate increases.

The big picture: The theme of quantitative tightening is long gone and while U.S. data continues to hold firm, Fed Chairman Jay Powell and other Fed heavyweights are beginning to shift the narrative to worsening developments in other countries.

What's happening: Powell got things started in a little-noticed exchange during the Q&A session following the Fed's most recent policy meeting when he pointed out slowing in Europe and China.

Prominent Fed members have doubled down on those comments in the weeks since.

What they're saying: Fed Vice Chair Richard Clarida said last week in a speech titled "Global Shocks and the U.S. Economy" that even though the Fed's mandate is domestic, it now will keep a close eye on a series of "prominent" global growth risks and may need to pay closer attention.

  • "In today's world, U.S. policy makers can hardly ignore these risks," Clarida said. "The U.S. economy's increasing integration with the rest of the world has made it more exposed to foreign shocks."

More importantly, Clarida pointed to Fed rate cuts in 1998 he said helped avert a larger global financial meltdown. "In these episodes, accommodative policy responses in the United States helped ward off actual contractions of U.S. activity."

Clarida's comments followed remarks from Chicago Fed President Charles Evans and Boston Fed President Eric Rosengren that pointed to worrisome global developments that could push the Fed's hand on cutting rates, with Evans also spotlighting 1998.

The bottom line: Analysts have argued about whether the bond market or the stock market is right, as their prices have been atypically in sync for months. The answer could very well be both.

  • Fed rate cuts would likely be a major boon for equity prices and also boost bond prices, driving down yields. This is just what both markets seem to be pricing in.

Go deeper

Deadly Hurricane Zeta churns inland after lashing Louisiana

A satellite image of Hurricane Zeta. Photo: National Hurricane Center/NOAA

Hurricane Zeta has killed at least one person after a downed power line electrocuted a 55-year-old in Louisiana as the storm moved into Alabama overnight.

What's happening: After "battering southeastern Louisiana and southern Mississippi," it began lashing Alabama late Wednesday, per the National Hurricane Center.

46 mins ago - World

Taiwan reaches a record 200 days with no local coronavirus cases

Catholics go through containment protocols including body-temperature measurement and hands-sanitisation before entering the Saint Christopher Parish Church, Taipei City, Taiwan, in July. Photo: Ceng Shou Yi/NurPhoto via Getty Images

Taiwan on Thursday marked no locally transmitted coronavirus cases for 200 days, as the island of 23 million people's total number of infections reported stands at 550 and the COVID-19 death toll at seven.

Why it matters: Nowhere else in the world has reached such a milestone. While COVID-19 cases surge across the U.S. and Europe, Taiwan's last locally transmitted case was on April 12. Experts credit tightly regulated travel, early border closure, "rigorous contact tracing, technology-enforced quarantine and universal mask wearing," along with the island state's previous experience with the SARS virus, per Bloomberg.

Go deeper: As Taiwan's profile rises, so does risk of conflict with China

Updated 1 hour ago - Politics & Policy

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

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  2. Health: Fauci says U.S. may not return to normal until 2022 — Trump's testing czar: Surge "is real" and not just caused by more tests Some coronavirus survivors have "autoantibodies."
  3. Business: Consumer confidence sinking Testing is a windfall.
  4. World: Europe faces "stronger and deadlier" wave France imposes lockdown Germany to close bars and restaurants for a month.
  5. Sports: Boston Marathon delayed MLB to investigate Dodgers player who joined celebration after positive COVID test.

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