In view of analysts at Deutsche Bank, the Fed have a very delicate balancing act to contend with as they have a choice of endorsing current dovish market pricing and keeping things calm, or to suggest it’s gone too far too quickly and give risk assets a sharp jolt.
“Friday’s strong retail sales data (more later) adds to the complexity. It’s hard not to feel that they are being driven into a corner at the moment as markets are now pricing in virtually a full rate cut at the July meeting and a further 2 cuts over the next 12 months.”
“Expectations are much lower for a cut this week, with around an 18% chance. Our US economists recently changed their Fed call and expect 3 cuts of 25bps each at the July, September and December meetings. They also lowered their 2019 growth forecast by 40bps to 1.9%. So all eyes on Wednesday.”
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