FOMC perceive clear and present risk - Westpac

Elliot Clarke, senior economist at Westpac, points out that at the June meeting, the FOMC’s stance on monetary policy shifted materially and while their core view of the economy remains constructive, “uncertainties” now dominate. 

Key Quotes

“Beginning with the core view, it clearly remains constructive. The only real economy forecast to see material revision in June was the 2019 inflation view, which was revised down from 1.8% to 1.5%.”

“There was also essentially no change in the GDP forecasts, with above-trend growth still seen across the forecast horizon, while the unemployment rate forecasts were actually marked a touch lower – despite May’s material disappointment for nonfarm payrolls.”

“That seven participants now see two cuts in the federal funds rate by year end, and another member one cut, highlights the above core view has slipped into the background.”

“To the downside, there is a material risk that, after the Osaka G20 meeting, President Trump extends the 25% tariff to the remaining $300bn of US imports from China. Given the soft state of US investment and fragile confidence amongst business, under such a scenario, the FOMC could easily justify bringing forward the first cut to July and showing stronger concern over the outlook. The risk of the imposition of this tariff soon after could also see the FOMC act in July.”