In the US, the FOMC is front and center this week and is universally seen delivering a rate cut Wednesday. Even though hopes for a 50 bp reduction have been discouraged by Fed commentary, by stronger US data, and by encouraging fiscal and trade developments, the markets could be disappointed nonetheless, mirroring the post-ECB reaction. Guidance will be key and we doubt the policy statement or Chair Powell’s press conference will be as dovish as the markets want, or are pricing in. Along with the FOMC, it’s a busy week of key data across the globe, with a packed earnings slate as well.
The FOMC is not responding to current growth. Rather, this week’s all-but-implemented easing is an “insurance” move, a risk management operation. Policymakers have been acknowledging and data have been supporting indications of a “solid” US economy, a strong labor market, a low unemployment rate all year and gains in consumer spending. Those aren’t the usual underpinnings for more stimulative measures. Instead, the rate cut is supposedly aimed at addressing persistently low inflation, the slump in capex, the threat that weaker economic conditions overseas will spill over to the US, and uncertainties over the outlook for growth accelerating inflation. However the recent economic data could reduce odds for a string of moves into 2020.
The policy statement and Chair Powell’s press conference are expected to reiterate the above factors. That will leave the door open for additional easing, but it won’t reflect the more dovish posture the markets are hoping for.
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