Following the last FOMC gathering, Researchers at UOB Group now think that the Federal Reserve could reduce further its FFTR at the December meeting.
“The FOMC, as widely expected, cut its policy Fed Funds Target Rate (FFTR) by 25bps to the 2- 2.25% range in its latest 31 Jul meeting, but it was not a unanimous decision (8-2) as Boston Fed President, Eric Rosengren and Kansas Fed President, Esther George wanted to keep rates unchanged. The Fed also announced an earlier termination of its Balance Sheet Reduction (BSR) program in Aug 2019 (from Oct 2019 previously)”.
“The key reasons for the Jul Fed rate cut was “In light of the implications of global developments for the economic outlook as well as muted inflation pressures” even with the view that US domestic conditions remain robust”.
“The FOMC statement did not commit to a further rate cut but left that option open saying the FOMC “contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”
“But most damaging to those holding aggressive Fed rate cut expectations was Powell’s press conference comments which was seen as hawkish as he pointed that ““Let me be clear: What I said was it’s not the beginning of a long series of rate cuts. I didn’t say it’s just one or anything like that. When you think about rate-cutting cycles, they go on for a long time and the committee’s not seeing that. Not seeing us in that place.”
“The Jul FOMC and Powell’s latest comments certainly add to the expectations the Fed will stay on pause in the Sep FOMC. After the Jul rate cut, we expect the Fed to go into a period of wait-and-see as more US data becomes available, and then to follow up with another 25bps cut only in Dec, bringing the upper bound of FFTR to 2.00% by end-2019, which matches the Fed’s 2% inflation target”.