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Sonia Meskin, US economist at Standard Chartered, suggests that the July FOMC minutes were noncommittal regarding future rate cuts, which Standard Chartered analysts believe is largely due to a relatively quick stabilisation of financial markets following volatility in the first week of August.

Key Quotes

“We note that members who opposed the July rate cut viewed international trade risks as having diminished over the intermeeting period. We believe trade tensions have re-escalated since. We see two more 25bps cuts in 2019.”

“The minutes also included a discussion of money-market dynamics, but no clear guidance on the potential for and timing of a standing repo facility. We believe that the FOMC expects lower rates, the ability to widen the fed funds target rate-interest on excess reserves (FFTR-IOER) band at least once more, and a likely expansion of the balance sheet later this year to help alleviate pressures in the repo and fed funds markets.”

“The minutes laid out three reasons for July’s 25bps rate cut, in the following order:

1.     Deceleration in business investment and manufacturing, domestically and globally

2.     Prudent risk management, given the limited policy space of foreign authorities

3.     Concerns about the inflation outlook and inflation expectations.”

“Importantly for the policy outlook, the minutes validated a pre-emptive approach to monetary policy. Many participants noted that an improved understanding of asset purchases and forward guidance justifies using these tools “more confidently and pre-emptively” in the future. This is consistent with market pricing of a prolonged period of relatively low rates.”