Fed to cut two more times during 2019 – Wells Fargo

Analysts at Wells Fargo, forecast two 25 bps interest rate cuts from the Federal Reserve, one next week and one during the fourth quarter. 

Key Quotes: 

“As goods make up only a fraction of the CPI, we estimate the latest round of tariffs will add only 0.1-0.2 percentage points to the year-over-year rate of CPI inflation. Still, the overall trend in inflation remains tame, and we do not expect core PCE inflation to return to 2% until 2020.

“Nonfarm job growth has slowed, as employers added only 130K jobs in August. But, revised data, which will be finalized in January 2020, show about 500K fewer jobs were created in the 12 months through March of this year. This suggests the 12-month average pace of job growth had already slowed to 168K by March.”

“Risks to the U.S. economy from slowing global growth and trade policy have intensified. The Fed seems intent on taking action to forestall a recession and return inflation to 2%. As such, we expect the Fed to cut rates two more times this year.”

“Fed Funds Forecast for 2020: One 25 bps cut in Q1-2020. With growth slowing to sub-2% and in the absence of a major breakthrough on U.S.-China trade relations, we expect the Fed to ease policy another 25 bps in Q1-2020.”