Fed Cuts Again – Next One in January?

Stockholm (Ekonamik) – At its October meeting, the Federal Open Markets Committee (FOMC) decided to lower the target band for the Fed funds rate to between 1.5% and 1.75%.

“My colleagues at the Federal Reserve and I are dedicated to serving the American people. We do this by steadfastly pursuing the goals that Congress has given us—maximum employment and stable prices,” Chairman Powell said at the start of his press conference following the decision. “We are committed to making the best decisions we can, based on facts and objective analysis. Today, we decided to lower the interest rates for the third time this year.”

What’s Next?

The decision had been widely anticipated. However, the most noteworthy part of the decision appears to be the perception that it is all we will get from the Fed for now. Comparing the changes in the language used by the Fed between the September and October meetings, Michael Gregory, CFA Managing Director, Deputy Chief Economist and Head of U.S. Economics at BMO Capital Markets commented that, in its outlook, the Fed has appeared to have gone “from ‘acting’ to ‘assessing’ ”.

According to Keith Wade, Chief Economist and Strategist at Schroders, “in his press conference, Fed chair Jerome Powell indicated that the bar to further easing had been raised and would require a ‘material reassessment’ of the economic outlook. In effect, the Fed believes it has now taken out the necessary insurance to cover the risk of a more serious downturn in the US economy.”

“Based on Powell’s above-mentioned comments we think another rate cut would require continued weak ISM prints, softer job data and tighter financial conditions (perhaps do to the trade war re-escalation),” Morten Lund and Anders Svendsen at Nordea Markets agreed. “We still see the economy weakening going forward why we also expect another cut in this cycle, totaling four cuts. (…) On margin, we think the risk is tilted towards a cut in January rather than December.”

The headline from Thomas Costerg, Senior US Economist at Pictet Wealth Management was “Fed hits the pause button,” but fundamentally, he agreed with the other analysts. “Our current baseline is for rates to be on hold next year, but we see a growing possibility that the Fed resumes rate cutting as the US economy slows.”


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