Analysts at Rabobank point out that the US Fed has adopted a wait-and-see approach and carefully removed references to further rate hikes in its latest meeting yesterday.
Key Quotes
“The FOMC statement saw four important changes. The phrase that the Committee judges that some further gradual increases in the target range for the federal funds rate will be consistent (with the Fed’s objectives) was removed. The remark that the Committee judges that risks to the economic outlook are roughly balanced was dropped as well.”
“At the same time, the FOMC added that ‘In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support those outcomes.’ Note that the use of ‘adjustments’ instead of ‘increases’ underlines that the Fed’s bias toward tightening has been removed from the statement. Finally, the FOMC statement also noted that market-based measures of inflation compensation have moved lower in recent months.”
“During his press conference, Chairman Powell repeated that the US economy was in a good place, but noted the cross-currents that the economy was facing. He said that the case for rate increases has weakened somewhat as the risk of too high inflation has diminished. When asked about the length of the Fed’s patience and whether it was a pause or the end of the hiking cycle, Powell said that it would depend on the incoming data and therefore it is difficult to label.”
“All’n all, both the FOMC statement and Powell’s press conference confirm our view that the Fed’s pause is in reality the end of the hiking cycle. We expect the Fed’s target range for the federal funds rate to remain unchanged for the remainder of the year, followed by rate cuts in 2020 as the economy starts to slide into a recession.”
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