Analysts at TD Securities are expecting the US Fed to lower rates again by 25bp next week, doubling-down after its first rate cut in over a decade at the July meeting.
“We also expect the IOER rate to decline by 25bp, as the effective Fed funds rate (at 2.13%) remains well-below the upper bound of the Fed's target range. In explaining its decision, we anticipate the Fed will emphasize that the factors that led them to ease last month have failed to dissipate. In fact, global growth remains disappointing and trade uncertainty has only increased.”
“We also expect the FOMC to continue to characterize the additional accommodation as a "mid-cycle adjustment" or "insurance cuts" and not the beginning of an easing cycle. However, they will not close the door to additional cuts, and we look for another 25bp cut in October and further 75bp of easing in 2020.”
“Our view on an October cut relies on the 1998 insurance cut scenario, when the Fed eased rates 75bp at consecutive meetings. Furthermore, research cited by the Fed argues for easing sooner given the proximity to the zero lower bound. A new escalation in the US-China trade war, which led to higher tariffs in the intermeeting period, has clearly raised the stakes and is a notable new development for the Fed.”
“Chair Powell had judged those risks as having "returned to a simmer" in July. This was also flagged by Vice Chair Clarida, who noted that "the global outlook has worsened" since the FOMC last met. The recent rapprochement between US and Chinese officials may ease concerns, but the uncertainty on the trade front should continue to linger.”
“On net, we believe that foreign and domestic developments since the July meeting are supportive of additional easing by the Fed in September.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.