July 15, 2019 — Upcoming Fed Meeting; Will Powell Follow the Market’s Lead?


US central bank policymakers will meet on July 30-31 when they may cut the benchmark interest rate by 25 bps.  The markets have been demanding a cut to protect the economy from rising risks such as trade tensions and slowing global growth.

Economists at Bloomberg believe Fed Chair Powell will act, neutralizing the 25 bp rate increase the FOMC made in December. Powell will cede to the market and act now, rather than wait until September. They expect a total of 50 bps of cuts this year, with the second cut taking place in December, dependent, of course, on the tone of incoming data.

But other economists are not certain a rate cut is imminent.  Their belief is the economy is still healthy, a US-China deal is possible, and Powell will not want to succumb to pressure from the President to cut rates.  If a trade deal should happen, the Fed would have to reverse course.  Further, the June CPI numbers last week showed the best increase in 1.5 years, though still running well below the 2% inflation target.  US treasuries hit a one-month high Friday after the inflation release.

The US yield curve steepened last week by the most in almost three years in anticipation of rate cut. Expectations are 81 percent for rates go down on July 31.