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Commenting on FOMC Chairman Powell’s remarks, “Financial markets have taken Jerome Powell’s testimony as a signal that the Federal Reserve is fully on board for rate cuts,” ING analysts said. “However, the statement is more nuanced and hints at a more cautious approach from the Fed than is currently priced.”

“Overall, the tone of the testimony together with Powell’s previous commentary, such as his assertion that an “ounce of precaution is worth more than a pound of cure”, suggests we should prepare for rate cuts. We agree with the market that the Fed will cut rates 25bp in July and likely follow up with a further 25bp in September. Thereafter, it is down to the big unknown of what happens with trade policy, and that is something that is very firmly in President Trump’s hands.”  

“If US-China talks break down and a new round of tariff hikes are implemented this could lead to more economic weakness through disrupting supply chains, putting up costs and hurting profit margins.”

“However, our trade team takes the view that the fear of economic weakness for both sides will lead to China and the US finalising a deal later this year that doesn’t necessarily achieve all of President Trump’s initial demands. A positive boost to sentiment from this would clearly reduce the need for additional Fed policy easing.”