FOMC Preview: What 13 major banks are expecting from September meeting?

Today, world markets are keenly awaiting the outcome of the all-important Federal Open Market Committee (FOMC) monetary policy decision for the month of September, which will be announced at 1800 GMT. As we move towards the decision timings, here is a sneak preview of the expectations of the economists and researchers of 13 major banks regarding the outcome of the meeting.

The consensus amongst most economists and analysts suggest that the Fed will deliver its second rate cut of 25bps by taking the Fed Funds rate to 2.00% while making minimal changes to its statement.

TD Securities

Analysts at TD Securities are expecting the US Fed to lower rates again by 25bps today, doubling-down after its first rate cut in over a decade at the July meeting.

“We also expect the IOER rate to decline by 25bp, as the effective Fed funds rate (at 2.13%) remains well-below the upper bound of the Fed's target range. In explaining its decision, we anticipate the Fed will emphasize that the factors that led them to ease last month have failed to dissipate. In fact, global growth remains disappointing and trade uncertainty has only increased.”

“We also expect the FOMC to continue to characterize the additional accommodation as a "mid-cycle adjustment" or "insurance cuts" and not the beginning of an easing cycle. However, they will not close the door to additional cuts, and we look for another 25bp cut in October and further 75bp of easing in 2020.”

Nordea Markets

“We expect the Fed to cut its key policy rates by 25 bps at this week’s FOMC meeting – which would be the second consecutive rate cut in the current easing cycle – taking the Fed Funds corridor to 1.75-2.00% with an Interest On Excess Reserves (IOER) rate of 1.85%. Two hawks will likely dissent...again.”

“We expect the Fed to signal its intention to “act as appropriate to sustain the expansion”, which we take to mean that more rate cuts are likely if and only if the outlook worsens. The outlook has worsened, though – perhaps enough for the new dot plot to show a third rate cut later this year.”

“A rate cut is more or less priced in by the market so the words of Mr Powell and the outcome of the dot plot chart will likely be what determine market reactions. We expect a softer stance from the Fed, which should satisfy the fairly dovish market expectations going forward. In our view, it would be a massive hawkish surprise if the Fed were to leave rates unchanged.”

Rabobank

“We expect the Fed to cut the target range for the federal funds rate by 25 bps on September 18.”

“Repeating his mantra that the FOMC ‘will act as appropriate to sustain the expansion,’ despite the divergent views expressed by other Fed speakers, suggests that Powell is confident he has enough votes in the FOMC to make an insurance cut this month. However, we expect Rosengren and George to dissent from this month’s decision.”

“In our view the feedback loop between trade policy and monetary policy is likely to lead to another insurance cut before the end of the year, most likely in October.”

National Bank Financial

“In the U.S., the Federal Reserve will cut benchmark rates this week, the question is by how much. St. Louis Fed President James Bullard has recently argued in favor of a 50-basis point cut and there is indeed an argument to be made in favour of such a policy path. Trade uncertainties are still very much an issue and, judging from the latest ISM report, factory conditions are now deteriorating.”

“In our opinion, it would be difficult for the Fed to justify a 50-basis point move in such an environment, especially given that trade talks between the U.S. and China are set to resume in October. We are therefore calling for a 25-bps cut on Wednesday to be followed by another similarly-sized move before the end of the year.”

Deutsche Bank

According to Deutsche Bank analysts, the overwhelming consensus (and DB) expectation is for another 25bp rate cut from the US Fed this week, following the 25bp cut at the July meeting, which was the first rate cut since 2008.

“The main focus will be on where they go after this week. Our economists think a continued dovish bias should be evident in the statement language, Summary of Economic Projections and Chair Powell’s press conference. It seems Powell is still keen to emphasise the baseline as a mid-cycle slowdown though over anything more sinister but it’s hard to imagine him not highlighting the risks, especially around trade.”

“Expect the “act as appropriate to sustain the expansion” line to continue to be the takeaway. A reminder that after this 25bps cut our economists expect a further cumulative 75bps of rate cuts (Oct, Dec, Jan) after this week’s reduction.”

“With all the positive data releases from the US last week, which also included lower-than-expected weekly jobless claims and higher-than-expected consumer borrowing figures, investors reassessed the chances of aggressive easing from the Federal Reserve over the coming months. By the end of last week, investors saw the chances of at least 75bps of further cuts from the Fed this year at 17.6%, down from 40.6% at the end of the previous week. Meanwhile, the chances of just one further 25bp cut this year rose over the last week from 13.7% to 33.3%.”

Royal Bank of Canada

“Trade uncertainty and increased tariff costs will still weigh on the North American manufacturing sector over the second half of this year. But there is also still little evidence that weakness has spilled over significantly into the other 90% of the economy.”

“None of that is likely to prevent the US Fed from following up a 25 basis rate cut in July with another next week. The Fed is less concerned about near-term economic growth and inflation numbers than international trade/growth risks going forward – along with a clear disdain for surprising markets, which are already pricing in almost certain odds of another cut on Wednesday.”

“We expect another cut in Q4 as well. But policymakers continue to frame near-term rate cuts as a pre-emptive “mid-cycle-adjustment” rather than the beginning of a longer, more pronounced, cutting cycle driven by recession fears. Recent data/developments should only reinforce that view.”

Westpac

“Markets are fully priced for the FOMC to cut its federal funds rate 25bp to 1.75-2.0% but there is plenty of detail to absorb. Along with the usual statement, this meeting will provide quarterly forecasts of GDP, inflation, the unemployment rate and the “dots” of FOMC members’ projection of the funds rate as at end-2019, 2020, 2021 and “longer term.” We will also hear from Fed chair Powell in his press conference.”

“Westpac’s view is for 25bp rate cuts at the three FOMC meetings remaining this year. But the median “dots” profile is likely to be more cautious, while Powell may err on the hopeful side even as he discusses a rate cut aimed at providing insurance against trade and other risks to the US economy.”

ING

“We think that the bar for a hawkish surprise is now higher compared to only a couple of weeks ago suggesting limited scope for a USD-positive reaction and a major sell-off in UST after the announcement.”

“In fact, we see some scope for a dovish surprise, which can be delivered either through signalling a third rate cut in the dot projections (median dot lowered to 1.7) or by a slight change of tone in Powell’s language about the negative risks stemming from the worsening geopolitical backdrop.”

Standard Chartered

Analysts at Standard Chartered expect the Federal Reserve to lower the Fed Funds rate by 25bps to 2.00% and make minimal changes to statement. They expect two dissenting votes. 

“Market pricing for the September FOMC event has turned less dovish recently on news of potential, if partial, trade agreement between the US and China and strengthening domestic inflation. We believe the committee remains deeply divided regarding the appropriateness of July’s cut, as well as possible cuts in the near future, and anticipate that the ‘dot plot’ will continue to reflect this; we expect little change to the economic outlook and see the median path of policy signalling a slight possibility of a third cut in 2019, after policy easing in July and, we expect, September.”

“We expect two dissenting votes.”

“We maintain our call for another 25bps cut in December this year, following the anticipated cut on 18 September.”

“If Powell uses the word ‘vigilant’ in the press conference, it would be a dovish signal that would suggest that the committee is contemplating at least one more rate cut in 2019.”

United Overseas Bank

“We now expect the Fed to cut the FFTR by another 25bps in the 17/18 Sep 2019 FOMC. We also project two more 25bps “insurance” rate cuts in the 29/30 Oct and the 10/11 Dec FOMC, bringing the upper bound of the FFTR lower to 1.5%, well below the 2% inflation target”.

“We have not priced in further cuts in 2020 and our base case is for some sort of US-China trade deal happening in 1H 2020. However, if trade tensions persist well beyond 2019, then we think the Fed will have to take on more “insurance” easing, especially if it leads to material downside impact to US and global growth”.

United Bank of Switzerland

Analysts at UBS offer a sneak peek at what to expect from Wednesday Federal Open Market Committee’s (FOMC) decision on the US monetary policy due to be announced at 1800 GMT.

“Expect 25 bps rate cut.”

“Expect the same two dissents: George and Rosengren.”

“Lower dot-plot path, a two-cut median in 2019, but no change to longer run.”

“The statement will be slightly downgraded.”

“We expect Powell to highlight the three themes listed in the July minutes about why they cut rates: uncertainty from the trade war, the global outlook, and low inflation. The last seems to be fading in intensity, but the first two are more pressing.”

ANZ

“The Federal Open Market Committee (FOMC) is expected to cut rates by 25bps this week.”

“We also expect it to maintain an easing bias and for many FOMC members to project three rate cuts for 2019.”

“The dot plot should drop, but the distribution around the median is likely to widen as the Committee is divided on the need for easing.”

“Fed Chair Powell may face a challenge articulating the policy outlook given the division of views, however we expect him to emphasise the Fed will do what it can to sustain the expansion.”

Danske Bank

“We expect the Fed to cut again this week in line with market pricing.”

“We expect the Fed to repeat its easing bias and to lower its dot plot to signal one more cut is on the cards but without a pre-commitment to this.”

“If the Fed cuts next week, we still expect a 25bp cut at each of the next four meetings, taking the target range to 0.75-1.00% in March.”