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James Knightley, chief international economist at ING, points out that there were clear divisions within the FOMC at the September FOMC meeting with both Esther George and Eric Rosengren opposed the 25bp rate cut, favouring a no change outcome, while James Bullard wanted a 50bp rate cut.

Key Quotes

“In recent speeches Esther George has continued to warn that lower interest rates “risks overheating the sectors of the economy that are already performing well”, although we would suggest that the recent data flow indicates there are few of these “hot spots” around these days.”

“Likewise, Eric Rosengren will oppose another rate cut having said on October 11 that “my forecast for the economy does not envision additional easing being necessary”. James Bullard, meanwhile, continues to emphasise downside risks, encouraging “the committee to take action”.”

“Other Fed voters have been more equivocal in their views, but the general use of the word “risks” has been a key theme. Given the deteriorating growth story and the benign inflation backdrop we feel that a majority will once again come down in favour of a rate cut. Economists are mixed, but with the market currently pricing in 23bp of a 25bp rate cut for next Wednesday we believe the Fed will take action.”

“Assuming the economy continues to soften in line with our view – we expect sub 2% 3Q19 GDP growth and sub 1.5% growth in 4Q – then the Fed will likely follow up with additional rate cuts in December and January.”