FOMC minutes reinforced the Fed’s ‘on hold’ stance – UOB

Senior Economist at UOB Group Alvin Liew assessed the recent publication of the FOMC minutes of the October meeting.

Key Quotes

“In the latest minutes, most Federal Reserve policy makers “believed that a reduction of 25 basis points in the target range for the federal funds rate would be appropriate” in the October decision, “in light of persistent weakness in global growth and elevated uncertainty regarding trade developments” but not everyone was on board with the October rate cut decision as some “participants favored maintaining the existing target range for the federal funds rate at this meeting”.

“As for the policy direction going forward, most participants believed that after the cut in October, the policy stance is appropriate and “would be well calibrated” and “likely would remain so as long as incoming information about the economy did not result in a material reassessment of the economic outlook”.

“The FOMC minutes helped reinforced expectations for a Fed policy cycle pause after three sequential 25bps rate cuts in July, September and October but provided little else in terms of new information”.

“Without further new insights to the Fed policymakers’ rate trajectory preferences, we maintain our expectations for the Fed to stay on pause in the 10/11 December 2019 FOMC decision. We expect the Fed to implement the next 25bps rate cut in 1Q 2020, and thereafter to stay on pause again for the rest of 2020. The caveat is that if trade tensions persist well beyond 2019 and into next year, then we think the Fed will have to take on more easing in 2020, especially if it leads to material downside impact to US and global growth”.