Deutsche Bank analysts note that as per expectations, the fed funds rate was cut by 25bps albeit with a 7-3 split (two in favour of no change and one in favour of a 50bp cut) with the IOER cut by 30bps however the dots were the main talking point initially.

Key Quotes

“The signal is a somewhat divided committee. The median dot shows no further cuts in the remainder of 2019 or 2020. However, 7 of the 17 dots favour one more 25bp cut this year, albeit no-one expects more than a 25bp cut. There are also 8 dots in 2020 which favour a fed funds rate 25bps below where it is now. What is interesting however is that there are 5 dots which are 25bps above the current rate for this year and 7 above the current rate for 2020. In fact, one of those in 2020 is 50bps above the current rate. So, one way of summing that up is that the doves aren’t particularly dovish and there is a clear group of hawks on the committee. The sharp sell-off across rates immediately following the statement certainly reflected that.”

“As for the statement itself, there was very little change. The reference to “muted inflation pressures” was kept despite CPI strengthening in recent weeks while the only real change of note was the reference to household spending rising at a “strong pace”. The summary of economic projections was a wash with the exception of 2019 growth being upgraded to 2.2%. As for Powell’s press conference, unlike previous meetings there weren’t all that many talking points.”

“The general feeling was that Powell was very considered and balanced in his responses with a broad aim of not wanting to guide the market. That was particularly the case when going out of the way not to repeat the mid-cycle adjustment language. Our economists summed it up by saying that Powell reinforced the message that the Fed that continues to see a favourable baseline outlook, albeit one buffeted by significant downside risks from weak global growth and trade policy uncertainty. They continue to expect 75bps more of rate cuts through Q1 next year with a possible announcement also of a resumption of balance sheet growth next month.”


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