Fed opted to act now and ask questions later – CIBC

At today’s meeting, the FOMC cut the Fed Funds rate by 25 basis points. Avery Shenfeld, analyst at CIBC, the FOMC statement sounded like it came from a central bank that isn’t really sure the economy actually needs lower rates.  

Key Quotes:  

“The Federal Reserve opted to act now and ask questions later about whether the US economy really needed the quarter point reduction in policy rates that it delivered today. But the accompanying statement sounded like it came from a central bank that isn’t really sure the economy actually needs lower rates at this point. In addition to the quarter point cut, the Fed opted to cease its planned balance sheet roll down right away, as opposed to its prior plan to wait another two months.”

“The Fed opted to quickly reiterate that its base case outlook still has the economy doing well enough to sustain low unemployment and return inflation to the 2% target. In other words, don’t worry, most likely everything will be just fine and we won’t have to ease aggressively from here.”

“Powell called this a “mid-cycle adjustment” to policy, a phrase that contrasts this move with one that marks the start of a major cyclical downturn in rates.”

“The September meeting will force the issue, in that the Fed will have to present its updated outlook for the economy, as well as the “dot” projections showing the extent to which the members expect to trim rates any further. The Fed might opt to leave rates unchanged at that meeting, but if, as we expect second half growth averages near 1 ½%, that might be tame enough for one final further quarter point trimming in Q4 (likely October).”

“Equities won’t like this message today, but might be happier if the Fed is right and the economy grows well enough to support gains in earnings in 2020.”