Deutsche Bank analysts suggest that the Fed meeting has opened the door to rate cuts as early as July.
“They did note that Powell said “there was not much support” for a cut at yesterday’s meeting (excluding Bullard’s dissent), which likely means that they will need to see further deterioration in the data and/or worsening trade conflict to feel fully comfortable cutting in July. Even apart from those conditions, our econ team thinks that Powell’s comments on the ongoing Fed review, plus the persistence of inflation undershooting, potentially signal a willingness to allow for an “opportunistic reflation,” as Governor Brainard has described it. That would argue for a rate cut even if the data and trade talks do not deteriorate.”
“Overall, our econ team expects conditions to evolve sufficiently to warrant a cut in July, and view a 25bps move as more likely than 50bps, and they continue to anticipate a total of three rate cuts this year.”
“The biggest market reaction came in rates, where short-end treasuries rallied sharply and money markets moved to price in even greater odds of Fed easing. There are now 32bps of cuts priced in for the July Fed meeting; implying a near-certainty of a 25bps cut and some additional chance of a 50bps cut. Beyond that, there are now a full 75bps priced in through end-2019 and 100bps over the next 12 months.”
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