Researchers at UOB Group now see the Federal Reserve reducing the upper end of the FFTR to 1.5% by year-end.
“The intensification of the US-China tariff fight in 3Q took us by surprise and the worsening trade policy development will likely “push” the Fed to take on more “insurance” rate cuts in 2019”.
“We now expect the Fed to cut the FFTR by another 25bps in the 17/18 Sep 2019 FOMC. We also project two more 25bps “insurance” rate cuts in the 29/30 Oct and the 10/11 Dec FOMC, bringing the upper bound of the FFTR lower to 1.5%, well below the 2% inflation target”.
“We have not priced in further cuts in 2020 and our base case is for some sort of US-China trade deal happening in 1H 2020. However, if trade tensions persist well beyond 2019, then we think the Fed will have to take on more “insurance” easing, especially if it leads to material downside impact to US and global growth”.