Fitch: Fed will only cut rates once in 2019 - Fitch Ratings


  • Federal Reserve not expected to cut rates by as much as markets are pricing, according to Fitch Ratings.
  • Fed's Powell will speak again this week, all eyes and ears on...

Fitch Ratings has forecasted that the Federal Reserve is likely to cut interest rates by less than financial markets expect over the rest of 2019 given robust jobs growth in the US.

"A 25bp cut now appears probable at either the July or September FOMC meeting but is unlikely to signal the start of a series of interest rate cuts, in contrast to the path currently priced into Fed funds futures markets."

The press release comes ahead of this month's Federal Reserve meeting and on a week where we are expecting to hear from more Fed speakers. 

 Fed Chair Powell is expected to further solidify the case for a 25bp cut at the July FOMC meeting after last week reiterating the Fed's desire to "sustain the economic expansion". Although Fed's Williams did not perform for the doves today, he did acknowledge that arguments for policy easing have strengthened last week.  There could also be further remarks by voters Evans, Rosengren and Bullard.

Meanwhile, the press release from Fitch Ratings continues as follows:



Dovish congressional testimony from Fed Chairman Powell last week suggests that an interest rate cut looks likely later in 2019. Powell's comments included a surprisingly prominent emphasis on low inflation considering that several core inflation indicators remain around 2%. He also stated that downside risks to US growth from weakening global expansion and trade policy uncertainties had remained in place since the Fed's meeting in mid-June. 

US GDP continued to grow faster than potential through 1H19, consumer spending indicators are solid and job growth is robust in the context of a historically tight labour market. So, the forthcoming cut seems likely to be presented as an 'insurance policy' move aimed at reducing downside risks rather than a 'data-driven' policy response. Business investment is slowing in the face of rising trade policy uncertainty and manufacturing output has fallen, but US GDP still looks likely to grow by 2.4% in 2019 before slowing to 1.8% next year, as forecast in Fitch's June "Global Economic Outlook". The Fed's own projections show a similar, above trend, rate of expansion over 2019 and 2020 combined. 

In this context, the Fed seems most likely to cut rates once by 25bp in 2019 and then leave rates on hold through 2020 rather than embarking on a series of rate cuts. The three rate cuts currently priced into futures markets by end-2019 would entail the Fed undoing nearly all of the tightening enacted in 2018, which seems quite unlikely unless the US economy slows down much more sharply than we (and the Fed) currently anticipate. 

A further sharp escalation in the US-China trade war could prompt a more abrupt US economic slowdown. But it is unclear in these circumstances how much lower interest rates would really help in offsetting the deleterious impact of trade policy disruptions on US exports, business investment and real wages. 

Fed easing that is less aggressive than financial markets anticipate could spark some market volatility against the backdrop of the recent reinvigoration of investors' search for yield. If market participants take the view that central banks will continually lower rates to support both economic activity and asset prices (akin to 'the Fed put'), this runs the risk that financial asset prices become particularly vulnerable to surprises in central bank policy reactions. 

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.

Feed news

Latest Forex News

Editors’ Picks

EUR/USD surges above 1.1100 as Trump announces steps against China

EUR/USD is trading above 1.1100, up on the day. President Trump said he orders companies to search Chinese imports for drugs. Earlier he criticized Powell's lack of action. 

EUR/USD News

GBP/USD jumps above 1.2250 on USD weakness

GBP/USD is trading close to the monthly highs above 1.2250 as the US dollar falls following Powell's hint of cutting rates and Trump's angry response. 

GBP/USD News

USD/JPY plummets to ten-day lows below 106 as Trump goes berserk on Twitter

The USD/JPY came under strong selling pressure in the last hour and erased nearly 100 pips as US President Donald Trump's latest rant on Twitter forced investors to seek refuge and ramped up the demand for safe-haven JPY. 

USD/JPY News

Gold gains more than $30, eyes 2019 highs on Trump’s tweet

Gold continues to rise sharply amid concerns about the impact of the escalation in the US-China trade war. The demand for safe-haven assets emerged over the last hours, leading to a rally in the yellow metal. 

Gold News

Powell powerless against Trump's trade wars – US braces for recession, USD set to move

"The most powerful central banker in the world" – is how we and others characterize Fed Chair Jerome Powell. While that may be true – monetary policy is reaching its limits – especially in the face of a trade war.

Read more

MAJORS

Cryptocurrencies

Signatures


  •  
  •  
  •  
  •  
  •