Threat of recession to force Fed to start a full-blown cutting cycle in 2020 - Rabobank

Eren Sengezer FXStreet

"The escalation of the US-China trade war and the resulting turmoil in financial markets has finally opened the Fed’s eyes that the hiking cycle is over and that the next move should be a rate cut," note Rabobank analysts ahead of next week's FOMC meeting.

Key quotes

"With the lack of progress in the US-China trade negotiations, the weak Employment Report for May and disappointing inflation data the FOMC now has all it needs to make an insurance cut. However, they may prefer to wait until after the G20 meeting before pulling the trigger. Therefore, we expect an insurance cut in July."

"In the meantime, we are likely to see a conditional statement at the June meeting promising an insurance cut if there is no significant improvement in the US trade relationships."

"What’s more, given the bleak outlook for the US-China trade negotiations, there is a significant risk of additional insurance cuts before the end of the year. However, we think that they will prove to be insufficient. More likely, the threat of a recession will force the Fed to start a full-blown cutting cycle in 2020."

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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