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According to analysts at Wells Fargo, trade uncertainties leading to declines in economic outcomes could be the basis for an interest rate cut in October. They suspect the FOMC will cut the fed funds rate another 25 bps (60% probability).  

Key Quotes:  

“After a decade without a rate cut, the Federal Reserve Open Market Committee (FOMC) has now cut the fed funds rate in back-to-back meetings. Will the October 29 & 30 meeting make it three in-a-row? Last week alone, twelve different Fed officials weighed in on policy at different events from London (Bullard) to Los Angeles (Daly). We have now entered the blackout period, the leadup to the FOMC meeting during which Fed officials refrain from commenting on monetary policy.”

“This meeting really comes down to two options with respect to rates: cut or no cut? Though it is a close call, we suspect the most likely outcome for next week’s meeting is that the FOMC will cut the fed funds rate another 25 bps, while continuing to emphasize risks to the outlook from global growth and trade policy and acknowledging that inflation remains below target. In the event of a cut in October, a fourth rate cut in December would likely not be needed.”

“We think the most likely outcome is that the Fed buys $60 billion of T-bills per month through the end of the year and then scales back, such that the total purchases amount to roughly $270 billion from mid-October through mid-April.”