Analysts at ING point out that it looks increasingly likely that the Fed will step in with more easing, with two 25bp rate cuts in either September and October or September and December, being the latest of their preference.
Key Quotes:
“President Trump is ratcheting up the pressure on the Fed to support his efforts on extracting concessions from China on trade. Policymakers appear reluctant, but market moves and other central bank actions look set to give them a nudge. This is why we think it looks increasingly likely that the Fed will step in with two 25bp cuts in September and December.”
“Our current forecast of just one further Fed rate cut in September is looking too cautious. Growth risks and inflation risks are looking increasingly to the downside in the wake of the latest trade escalation. With other central banks easing aggressively, this risks exacerbating upside pressure on the US dollar, which could further dampen growth and inflation and add to the pressure on the Fed to ease policy.”
“Though, we continue to doubt that the market will get the four additional rate cuts they are discounting. After all, we think that President Trump wants to be re-elected next year and recognises that a robust economy with rising asset prices is critical for that to happen. We continue to look for a “deal” even if not all of President Trump’s demands are met later this year.”
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