Fed Cuts Rates 1/4 Percent, Three Dissents: Dot Plot Suggests No More 2019 Cuts

Dot Plot and FOMC Statement

The Dot Plot is from Projection Materials. Here is an excerpt from the full FOMC Statement

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee 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.

Three Dissents

• Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent
• Esther L. George and Eric S. Rosengren preferred to maintain the target range at 2 percent to 2-1/4 percent.

Tapering and Balance Sheet Reduction Still On Hold

The Committee directs the Desk to continue rolling over at auction all principal payments from the Federal Reserve’s holdings of Treasury securities and to continue reinvesting all principal payments from the Federal Reserve’s holdings of agency debt and agency mortgage-backed securities received during each calendar month. Principal payments from agency debt and agency mortgage-backed securities up to $20 billion per month will continue to be reinvested in Treasury securities to roughly match the maturity composition of Treasury securities outstanding; principal payments in excess of $20 billion per month will continue to be reinvested in agency mortgage-backed securities.

Interest on Excess Reserves Lowered

The Board of Governors of the Federal Reserve System voted unanimously to lower the interest rate paid on required and excess reserve balances to 1.80 percent, effective September 19, 2019. Setting the interest rate paid on required and excess reserve balances 20 basis points below the top of the target range for the federal funds rate is intended to foster trading in the federal funds market at rates well within the FOMC’s target range.

Statement Tracker

Three Fed Changes

The WSJ Statement Tracker shows three changes.

• Household spending went from "growth picked up" to "rising at a strong pace".
• Business investment went from soft to "weakened"
• Exports are a new item. Exports "weakened".

Observations

"Powell READING his answers to not say anything that gets him in hot water."

Danielle DiMartino @DiMartinoBooth

"So Powell thinks that cash flows known weeks in advance are to blame for Repo pressures. He is either full of sh.t or a moron."

Holger Zschaepitz @Schuldensuehner

"#Fed's Powell on Repo blowout: Market response to funding issues was surprising. Fed well aware of potential funding pressures. We will revisit question of when to grow balance sheet. Repo Overnight Rate remains > Fed's upper bound."

Holger Zschaepitz @Schuldensuehner

Fed Discusses More QE

"And there it is:
POWELL: MAY RESUME ORGANIC B/SHEET GROWTH EARLIER THAN THOUGHT"

Zerohedge @zerohedge

"POWELL: WE WILL REVISIT QUESTION OF WHEN TO GROW BALANCE SHEET

And with that, repo fireworks are coming"

Zerohedge @zerohedge

Expect More Cuts

I side with those who expect more rate cuts.