Global Daily – Fed speakers open door to rate cuts

by: Bill Diviney

Fed View: Officials turning notably more dovish – Following the dramatic moves in market pricing for Fed rate cuts, and as economists increasingly also come around to this view (we now expect three 25bp cuts by Q1 20, starting in July), Fed officials have been clarifying their stance over potential cuts in recent days. While Chair Powell did not directly refer to rate cuts in remarks yesterday, his comment that the Fed would ‘act as appropriate’ to sustain the expansion came in contrast to previous references to ‘patience’ over policy. Since then, we have had further commentary from FOMC members Kaplan, Evans and Brainard (the latter two voting members). While playing down expectations of an imminent policy move, all three sounded dovish. Kaplan referred to the ‘chilling effect on business’ of Trump’s Mexico tariff threat, and that the Fed is ‘on heightened alert’. Evans spoke of ‘low inflation itself’ being ‘grounds to weigh more accommodation’, and that he sees ‘insurance reasons to talk about policy adjustments’. Finally, Brainard also expressed concern over low inflation, and spoke of the world economy being ‘in a delicate place’, and that the Fed is ‘prepared to adjust policy to sustain growth’. All told, while a move at the 18-19 June meeting looks a little premature, we expect the Committee to signal rate cuts via its dot plot projections at that meeting, and as a base case we expect an initial 25bp cut at the 30-31 July meeting. (Bill Diviney)