The FOMC resumed its meeting and the decision will be announced at 18:00 GMT today.
A 25 bp rate cut is all but certain, despite the stronger than expected data. The Fed won’t want to disappoint the markets. This would be a third consecutive 25 bp easing as the Committee takes back more of the 100 bps in 2018 rate hikes.
It is expected that this will be a one-more-and-done, however, given that the US economy, and particularly consumer spending, remains relatively upbeat. Fed officials remain concerned about the negative impacts globally of the trade war with the slowing in growth led by the contraction in manufacturing. And even though there’s been progress on trade and Brexit, neither has been resolved and the bearish effects will continue to reverberate for a while. Additionally, several on the Fed are also worried about still low inflation.
It will be important too, to see how that outlook is nuanced in the policy statement and by Chair Powell in his press conference, and that will leave the door open for various interpretations on policy. We doubt Chair Powell will be explicit about a pause, however, but will most likely repeat that the FOMC will “act as appropriate” to sustain the expansion. Of note, the prior two “mid-cycle” adjustments ended after the Fed lowered rates by 75 bps.
No further rate cuts are anticipated this year, and the FOMC could stand back to monitor conditions for a while. The Fed may address the conditions in the money markets and could announce it’s going to implement a permanent repo facility.
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