Fed firmly on hold this week – ING

James Knightley, Senior Economist at ING, argues that after three consecutive rate cuts Federal Reserve officials believe they have done enough to stabilise the economy. He sees the Fed in hold at this week meeting with the focus on the press conference and “dot plot” for guidance for 2020.

Key Quotes: 

“Like the market, we continue to see the risks skewed towards more rate cuts before an eventual hike. While Friday’s jobs numbers were fantastic other data suggest that the US economy is slowing. Capital expenditure has contracted in both 2Q and 3Q19 with the durable goods report hinting at a likely third consecutive fall in 4Q19.”

“Given ongoing trade uncertainty, weak external demand and the strong dollar we are comfortable to be on the softer side of market expectations for GDP growth (1.4% versus 1.8% for 2020 GDP) and bond yields (targeting 1.4% in 1H20). Political uncertainty surrounding next year’s election could also see businesses taking a more cautious approach on expansion plans, with an emphasis on “wait and see”. With inflation looking benign the Fed has the flexibility to respond and so we continue to see the potential for two 25bp rate cuts in 1H20.”