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“The key focus for markets this week is the July FOMC meeting, which concludes on Wednesday,” notes ABN AMRO senior economis Bill Diviney. “We and consensus look for a 25bp cut at this meeting, though there is some residual market expectation for a 50bp cut (none of the analysts surveyed by Bloomberg expect such a move).”

Key quotes  

“Given the dovish signalling from officials, the weakness in forward-looking indicators (particularly for manufacturing), and the persistence of downside risks to the outlook, we think a 25bp cut is a done deal. However, even the most dovish members of the committee (such as St Louis Fed President James Bullard) have expressed scepticism over a 50bp cut, so such an aggressive move looks unlikely.”

“The question therefore will be to what extent the Fed signals additional easing steps beyond what was signalled in June. With no update to the Committee’s projections at this meeting, it will be up to Chair Powell to steer market expectations via the press conference.”

“Given that this will be the first rate cut since the financial crisis, Powell will likely want to make a robust case for the move, and will sound accordingly dovish. We expect the emphasis to remain on the downside risks to the outlook, but reference will also be made to muted inflation and the possible de-anchoring of expectations, as well as the weakening in business confidence. All of this should support expectations for rate cuts, but we suspect he will struggle to ‘out-dove’ the market at this stage given what is already priced in (a further 65bp in cuts beyond the expected 25bp July move). We continue to expect an additional two 25bp cuts by Q1 2020 following the expected July cut.”