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Sonia Meskin, US economist at Standard Chartered, suggests that they have lowered their Fed funds target rate (FFTR) call for year-end 2019 to 1.75% (from 2.00%) by adding a 25bps cut in September.

Key Quotes

“We continue to forecast a cut in December, as well. We believe that heightened trade uncertainty, coupled with ongoing deterioration in global growth, will worry the Committee. The extent to which global growth deterioration will hurt the domestic economy is uncertain, and there is little precedent on which the Fed can confidently rely.”

“US economic fundamentals remain solid, for now, supported by a strong labour market and consumer spending. However, both coincident and leading indicators from the goods sector have been deteriorating. In part, this is due to the inventory build-up in Q1-2019, which we expect to spill over into H2-2019, subtracting 0.4-0.5ppt from y/y GDP. However, construction has also weakened, and business sentiment indicators have been flashing warning signals.”

“The stronger USD, rising unit labour costs, supply-chain disruptions and weaker revenue from abroad may soon combine to squeeze corporate margins and sap hiring. Meanwhile, core inflation remains below the FOMC’s medium-term 2% objective.”

“Against this backdrop, we believe the FOMC will ease further in H2-2019, and we expect the policy stance to remain dovish until either trade and growth concerns abate, core inflation tops 2% or wage growth tops 3.5% y/y, roughly the latest cycle’s peak.”