FOMC to make three 0.25% cuts by June – Westpac

Bill Evans & Elliot Clarke, Analysts at Westpac, have revised their forecast for the US FOMC, with 0.25% rate cuts in March, April, and June.

Key quotes:

“Readers will be aware that Westpac has forecast three cuts in the federal funds rate in 2020 since the middle of 2019.

That was based on a likely slowdown in the US economy to below trend (to 1.5%) in 2020 particularly as consumer spending slowed from a 3% pace in 2019 to near 2% in 2020.

However, in recent weeks the spread of COVID-19 has threatened the economic outlook for the US economy.

The FOMC responded to that tightening in conditions by lowering the federal funds rate by 50 basis points between scheduled FOMC meetings. In announcing the decision the Chairman of the FOMC Jay Powell, referred to “evolving risks associated with the Coronavirus”.

That decision achieved two of the three rate cuts we had expected in 2020.

The FOMC is expected to have decent insight into these events at its March, April and June meetings. A desire to maintain momentum in the US economy is likely to trigger cuts of 25bps at each of these meetings.

From the June meeting the negative COVID-19 effects are expected to ease providing the FOMC some comfort that it has achieved its purpose.”