Home Analysis Fed Expected to Cut Rates Again

Fed Expected to Cut Rates Again

Stockholm (Ekonamik) – At its October meeting this week, the Federal Open Markets Committee is widely expected to cut rates again, according to Nordic financial analysts.

Anders Bergvall, Senior Economist Handelsbanken Capital Markets argues that the “Fed will likely cut rates next week”, citing the slowdown in economic growth and inflation forecasts. However, the Nordic Bank goes further. “Given that we expect the US economy to slow further from here, we believe officials will cut rates one more time early next year, with risk tilted towards more cuts.

“According to the market pricing another rate cut in October is almost fully discounted (90%) and recent communication from FOMC members does not suggest market expectations are out of the woods,” according to Swedbank Research. “Overall we believe the most likely outcome is a rate cut in October followed by another cut soon thereafter as we continue to see the US economy to slow,” the Swedbank’s note says, echoing the other two banks.

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Danske Bank Research focused on the view by economists and the internal voting habits of the FOMC. “While economists are evenly divided between those expecting a cut and those expecting the Fed to remain on hold, investors have nearly fully priced in a cut,” said Mikael Olai Milhøj, Jens Nærvig Pedersen, Arne Lohmann Rasmussen and Pernille Nordlund Jonsson in a note. “We also believe it makes sense to ease when looking at the data. Global political uncertainty has eased, particularly with the US and China back at the negotiating table, but it remains elevated without any permanent trade deal. Global growth remains weak, although we have seen some early signs of stabilisation in China.”

Morten Lund and Anders Svendsen at Nordea Markets agree. “Key figures have clearly turned to the worse since the September meeting,” they explain. For them, the data is the main driver. “The latest ISM prints from both the manufacturing and non-manufacturing sector were big disappointments, while, for instance, the long-term inflation expectation measure from Michigan University reached an all-time low.”

“If they do not deliver, financial condition could tighten uncomfortably,” the Nordea analysts conclude.

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Filipe Wallin Albuquerque
Filipe Wallin Albuquerque
Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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