US: Inflation reports clear the way for the Fed to cut rates in October

Analysts at Wells Fargo, expect the Federal Reserve to cut rates in October and then two more times. They point out the recent announcement of the Fed to buy Treasuries did not push US yields lower.

Key Quotes:

“Fed Chairman Jerome Powell disclosed that the Federal Reserve would resume bill purchases in order to help stabilize the overnight funding markets. Powell was quick to note that this did not mark the beginning of another round of Quantitative Easing but rather was aimed at simply bringing stability to the short-term funding markets. Banks appear to be using reserves differently in this cycle, requiring the Fed to maintain a larger balance sheet than previously thought. The Fed’s move should help prevent a more significant liquidity crisis that might cause real trouble for the economy from developing. But the Fed also does not want anyone to interpret this move as an easing. Given the rise in yields this week, it appears the market is taking the Fed at its word.”

“The slightly better than expected inflation reports clear the way for the Fed to cut the federal funds rate by another quarter point at its October 29-30 FOMC meeting. We would expect to see one or two dissents, as FRB Kansas City President Esther Georgemade it clear this week that she does not see anything in the inflation data that would indicate that inflation expectations have shifted toward disinflation or deflation. We continue to look for two more quarter point cuts, as the Fed sees the current environment reminiscent of the late 1990s, when slower growth overseas caused the Fed to cut the federal funds rate three times, a total of 75 bps, which then reignited growth and allowed it to hike rates later in the cycle.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.