Fed has more work to do to support the economy – ING

Commenting on yet another disappointing Purchasing Managers’ Index (PMI) data from the United States (US) released by the Institue for Supply Management (ISM) on Thursday, “Both key ISM surveys are pointing to a major slowdown in US growth rates,” noted ING analysts.

“We are forecasting US GDP growth of 1.3% for 2020 versus a consensus estimate of 1.8% with the clear implication that the Federal Reserve has more work to do to support the economy.”

Key quotes

“Payrolls growth has been slowing over the past year. Initially, there was a sense that this was because firms were struggling to fill vacancies due to a lack of workers with the right skill sets. However, the downturn in business activity suggests that it is increasingly becoming a labour demand story. As such the recent pick-up in wage growth may not continue for much longer, which risks undermining consumer spending.”

“Given these fears, we cut our US GDP growth forecast for 2020 to 1.3% a couple of months ago. The consensus is still 1.8%, but we imagine that this will be moving lower. The latest developments should add a sense of urgency to talks seeking a resolution to the US-China trade dispute and will keep the pressure on the Fed to ease monetary policy further. We continue to look for a December rate cut and a further move in 1Q20, but the risks are increasingly skewed towards more aggressive action.”