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According to analysts from Rabobank next week the Federal Reserve will cut the target range for the federal funds rate by 25 bps. They see the central bank may also indicate that it thinks the mid-cycle adjustment has come to an end but they expect a recession in 2020 that will force the Fed to cut rates all the way to zero before the end of 2020.

Key Quotes:  

“We expect the FOMC to make an insurance cut of 25 bps to the target range for the federal funds rate at the October Meeting. This would bring it down to 1.50-1.75%. Since the effective federal funds rate is moving around the midpoint of its target range again, the Board of Governors is likely to make a similar size cut to the IOER rate, from 1.80% to 1.55%.”

“Although we expect the Fed to cut again this month, we also expect to see the same two dissenting votes. Eric Rosengren (Boston Fed) said on October 11 that in his view policy makers can be patient and continue to evaluate incoming data before taking additional action. Esther George (Kansas City Fed) said on October 18 that insurance cuts risk overheating the sectors of the economy that are already performing well.”

“Since the start of this year each FOMC meeting is accompanied not only by a formal statement, but also by a press conference. This will give Chairman Powell the opportunity to explain whether the mid-cycle adjustment has come to an end. The next update of the economic projections, featuring the dot plot, is scheduled for December.”