Powell tees up a US rate cut
In his Congress appearance, Federal Reserve (Fed) chair Jerome Powell set the stage for a US rate cut later this month. We expect more to come this year.
Although a stronger-than-expected increase in payrolls and renewed optimism over US-China trade talks had led to speculation that the US central bank would delay a move, Powell’s testimony to Congress on Wednesday made it clear that the Fed will make a move.
Referring to developments since the last rate setting meeting in June, Powell said in his prepared comments:
“Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the US economic outlook. Inflation pressures remain muted”.
In other words: the Fed is still concerned about growth, and inflation is not an obstacle to easing.
We would expect a 25 basis point move at the next meeting at the end of the month and given our outlook for a sluggish economy, another move in September. Both are likely to be presented as “insurance” against the downside risks facing the US economy. Our view is that more will eventually be needed given the headwinds facing the economy.
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