The Federal Reserve today as expected lowered the Fed Funds rate by 25bps. According to Wells Fargo analysts, the FOMC presented some indications that it is prepared to ease more.
“The statement that was released at the conclusion of the meeting was little changed relative to the statement that followed the July 31 FOMC meeting. Specifically, the language characterizing the current state of the economy was generally upbeat, and it stated that “sustained expansion of economic activity” is likely. However, the FOMC noted that “uncertainties about this outlook remain.” We see some indications in the statement and projection materials that the FOMC is prepared to ease further, if appropriate, in coming months.”
“Because the mid-point of the current target range is 1.875%, these lower dots indicate that a significant number of committee members, albeit not a majority, favor further easing this year. Moreover, 8 of the 17 dots at the end of 2020 stand at 1.625%.”
“The committee also reduced the rate that it pays on the excess reserves that banks hold at the Fed (the so-called “IOER”) 30 bps. As we wrote in a recent report, the Fed has had some difficulty controlling short-term interest rates recently. The cut in the IOER should help move the fed funds rate back into the target range.”
“We expect that the FOMC will cut its target range 25 bps in the fourth quarter of this year and another 25 bps in Q1-2020. Although we look for the expansion to continue, we acknowledge, as the FOMC noted in its statement, that uncertainties raised by the trade war cloud the outlook. That said, these expected rate cuts are by no means assured.”
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