Fed: We now see two more cuts by end-2019 on global growth and trade concerns –  Standard Chartered

Analysts at Standard Chartered now see two more 25bps interest rate cuts from the Federal Reserve by end-2019, on global growth and trade concerns. They expect the FOMC to remain dovish until global growth or trade concerns abate, or wages and core inflation accelerate meaningfully.

Key Quotes: 

“We lower our Fed funds target rate (FFTR) call for year-end 2019 to 1.75% (from 2.00%) by adding a 25bps cut in September (we expect two dissents again). We continue to forecast a cut in December, as well. We believe that heightened trade uncertainty, coupled with ongoing deterioration in global growth, will worry the Committee.”

“US economic fundamentals remain solid, for now, supported by a strong labour market and consumer spending. However, both coincident and leading indicators from the goods sector have been deteriorating.”

“Core inflation remains below the FOMC’s medium-term 2% objective. Against this backdrop, we believe the FOMC will ease further in H2-2019, and we expect the policy stance to remain dovish until either trade and growth concerns abate, core inflation tops 2% or wage growth tops 3.5% y/y, roughly the latest cycle’s peak.”