Fed: Too much growth risk, too little inflation – Standard Chartered

Sonia Meskin, US economist at Standard Chartered, suggests that they have lowered their 2019 forecast for the upper bound of the fed funds target rate (FFTR) to 2.00% from 2.50% and now see a 25bps cut in July and another 25bps cut in December.

Key Quotes

“We also lower our 2019 core PCE forecast to 1.7% (from 2.0%) as we expect recent inflation weakness to persist due to technical changes through H1-2019; our 2019 GDP forecast is unchanged. We expect GDP growth to weaken in H2-2019 on ongoing trade tensions and slower job gains, though a stronger-than-expected Q1-2019 GDP print should help offset this on net for the year.”

“We believe that the FOMC is concerned that trade tensions with major US partners, including China, Mexico and the EU, will persist and continue to dampen sentiment and real activity. In FOMC – Cuts now likely but not certain, we laid out three conditions necessary for the Fed not to cut rates. All three are flashing yellow, so even though they may not be fulfilled, we think the Fed is sufficiently concerned to act pre-emptively, given below-target inflation prints.”

“We expect the June FOMC meeting to tee up for a cut in July, after the G20 meeting. We think the FOMC will remain data-dependent with respect to another insurance cut in 2019. Another cut in December is our base case at this stage, as we believe that growth and inflation are unlikely to surprise meaningfully on the upside and trade tensions are unlikely to abate.”

“For the June FOMC meeting, we anticipate that the Summary of Economic Projections (SEP) will show a median projection for one 25bps cut in 2019 plus some probability of a second cut. A median projection of two full cuts in 2019 would be a very dovish tilt for the current Committee, in our view. However, a median projection for another cut in 2020 would indicate a moderately dovish tilt.”

“We expect the FOMC’s median core PCE projection to be revised down to 1.7% for 2019 and 1.9% for 2020. We do not expect a significant growth downgrade but anticipate that the statement will describe the Committee as “ready to act as appropriate to sustain the expansion” rather than remain “patient”.”

“We believe there is a strong chance that the FOMC will end the balance sheet taper before September, likely in June but possibly in July instead of engaging in further interest on excess reserves (IOER) cuts.”

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. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD quickly approaching September low

The EUR/USD pair extended its slump towards 1.1760 after ECB’s Lagarde said the economic recovery in the EU is “very uncertain, uneven and incomplete.” Next relevant support at 1.1736, this month low.


GBP/USD consolidates losses around 1.2840

The Pound plunged on risk-aversion and PM Johnson acknowledging the kingdom is undergoing a second coronavirus wave. Health authorities mull further restrictions.


XAU/USD dives to sub-$1900 levels, six-week lows

Gold extended last week's rejection slide from a short-term descending trend-line resistance and tumbled to six-week lows during the early North American session.

Gold News

Bitcoin gets back in the game

Bitcoin is on its third positive consecutive session in a row on the dominance chart and points to strong market share increases. Crypto market raises doubts on price development in the short term.

Read more

WTI plummets to $39, down more than 4%

Crude oil prices closed the previous week sharply higher but erased a large portion of those gains on Monday. As of writing, the barrel of West Texas Intermediate was down 4.2%, the biggest daily percentage decline in nearly two weeks, at $39.15.

Oil News