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Senior Economist at UOB Group Alvin Liew reviewed the recent publication of the FOMC minutes.

Key Quotes

“In the latest minutes, the FOMC spelt out clearly the three reasons for its 31 Jul FOMC rate cut; 1) concerns about the slowing US business spending & manufacturing due to international trade developments and uncertainties, 2) an insurance cut (“prudent step from a risk-management perspective”) and 3) there were simply concerns about the US inflation outlook”.

“The Jul decision was more divisive than initially thought as it was revealed in the minutes that “couple of participants indicated that they would have preferred a 50 basis point cut” while there were several participants who favored status quo in the July meeting”.

“The FOMC statement did not commit to a further rate cut but left that option open for it to do more if required”.

“The earlier end to the Balance Sheet Reduction (BSR) program in Aug also drew some concerns as some fear it may give the wrong impression that the FOMC views it as an active tool of policy. The view was probably not helped by the on-going review of Monetary Policy Strategy, Tools and Communication Practices where the Fed’s “latest finding” could suggest a more aggressive use of its unconventional tool box when the next need arise”.

“The Jul FOMC minutes does not change our expectations that the Fed will stay on pause in the Sep FOMC before delivering another 25bps cut in Dec, lowering the upper bound of FFTR to 2.00% by end-2019, which matches the Fed’s 2% inflation target. But the subsequent market & US-China trade talk developments, and brief yield inversion episodes does warrant a review of our FOMC outlook and we will publish our next report after this week’s Jackson Hole Symposium”.