Fed: 25bp cut a done deal; 50bp unlikely – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, points out that the Fed Chair Powell began his semi-annual testimony to Congress with a very dovish prepared statement, seemingly aiming to quash the idea that the recent trade war truce and last Friday’s upside payrolls surprise might derail Fed easing.

Key Quotes

“First, he restated the FOMC’s view from the June meeting that the Fed would ‘act as appropriate to sustain the expansion’, and that ‘the case for a somewhat more accommodative monetary policy had strengthened’ for ‘many’ FOMC members.”

“He added that ‘since then (…) it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook’. As well as reiterating that ‘inflation pressures remain muted’, meanwhile, he gave this a further dovish twist by saying ‘there is a risk that weak inflation will be even more persistent than we currently anticipate’.”

“Our base case continues to be for a 25bp cut at the 30-31 July FOMC, followed by another 25bp cut before end-2019, and another in Q1 2020.”