Fed to cut but be noncommittal over the future path – ABN AMRO

Bill Diviney, senior economist at ABN AMRO, expects a quicker pace of cuts than markets and consensus and suggests that they and the consensus is looking for a 25bp cut when the September FOMC meeting concludes today.

Key Quotes

“Market pricing of rate cuts has declined somewhat over the past week, consistent with the broader move in bond markets surrounding last Thursday’s ECB meeting, however a 25bp cut is still around 90% priced in. Given this, the focus will naturally be on the quarterly projections and on Chair Powell’s press conference. Ultimately, we expect the Fed to deliver another two rate cuts by the end of the year after today’s cut, which is more aggressive than both consensus and markets – both of which expecting just one further cut this year. However, the difference is more about timing and pace, as both consensus and markets expect another cut next year, while we expect the Fed to pause.”

“The question for this week is, to what extent the Fed will immediately signal more easing? Given the high degree of uncertainty over the trade war and the rather mixed tone to macro data, the FOMC will likely be reluctant to pre-commit and to signal too much at this stage; we expect the median ‘dots’ to foresee no further cuts this year, with one or two cuts next year.”