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Analysts at Standard Chartered now see two more 25bps interest rate cuts from the Federal Reserve by end-2019, on global growth and trade concerns. They expect the FOMC to remain dovish until global growth or trade concerns abate, or wages and core inflation accelerate meaningfully.

Key Quotes:  

“We lower our Fed funds target rate (FFTR) call for year-end 2019 to 1.75% (from 2.00%) by adding a 25bps cut in September (we expect two dissents again). We continue to forecast a cut in December, as well. We believe that heightened trade uncertainty, coupled with ongoing deterioration in global growth, will worry the Committee.”

“US economic fundamentals remain solid, for now, supported by a strong labour market and consumer spending. However, both coincident and leading indicators from the goods sector have been deteriorating.”

“Core inflation remains below the FOMC’s medium-term 2% objective. Against this backdrop, we believe the FOMC will ease further in H2-2019, and we expect the policy stance to remain dovish until either trade and growth concerns abate, core inflation tops 2% or wage growth tops 3.5% y/y, roughly the latest cycle’s peak.”