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Alvin Liew, from Global Economics & Markets Research at UOB Group, gives his opinion on the potential extra easing by the Fed in the next meetings.

Key Quotes

“Even though the number of Aug jobs created missed expectations, unemployment stayed low and wage growth accelerated, and both should imply that the US domestic private consumption remains intact and will continue to support US economic growth. In addition, FOMC Chair Jerome Powell in his latest Zurich speech (6 Sep) continued to pledge the Fed would “act as appropriate” to sustain the US economic expansion. Powell also highlighted trade policy uncertainty “is causing some companies to hold back now on investment” but he is comforted that lower (interest) rates are helping to keep the US economy in a good place. To us, that seals the deal for a 17/18 Sep FOMC rate cut. Indeed, expectations for a rate cut in the Sep FOMC was unchanged 100%”.

“That said, the latest jobs number miss does not carry enough weight to argue for an upsized 50bps cut in Sep, in our view… We believe the ongoing trade dispute will “push” the Fed to take on more “insurance” rate cuts in 2019. After the Sep cut, we project two more 25bps rate cuts in the 29/30 Oct 2019 FOMC and the 10/11 Dec 2019 FOMC, to bring the upper bound of the FFTR lower to 1.5%, well below the 2% inflation target. We keep our 2019 US GDP growth forecast at 2.5%, but our growth forecast of 1.3% in 2020 is at risk of further downgrade should trade developments worsen leading to a collapse of US business spending, even though Powell remains confident that the US will not fall into a recession”.