According to the Research Department at BBVA, tomorrow the Federal Reserve (Fed) will cut rates for the third time this year. They expect a 25bps cut, as elevated trade uncertainty and weakening investment outlook continue to weigh on the committee’s outlook.
Key Quotes:
“Markets have aligned with the October interest rate cut, but have lowered their expectations for an additional cut in December.”
“The committee will likely remain split over how to approach future interest rate decision. The hawks, fearing that overly accommodative conditions could fuel financial instability, and the centrist, wanting to allow for time to evaluate the impact of increased accommodation, will likely support a pause. After fulfilling the “mid-cycle” adjustment, the doves, despite concerns that delaying rate cuts could jeopardize the current expansion, may support a temporary pause if trade tensions between the U.S. and China remain in abeyance.”
“On the balance sheet, in an effort to disentangle the current efforts to replenish bank reserves with the stance of monetary policy, the committee will likely maintain its current policy course announced over the intermeeting period.”
“We expect that options for addressing the uptick in money market volatility such as the scope of the reserve shortfall, the impact of liquidity and capital requirements, regulatory guidance, standing repo facility and the presence of regime changes in reserve preferences will be discussed at the meeting.”
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