FOMC July decision appears to be squarely in the insurance camp - Standard Chartered

Sonia Meskin, the U.S. economist at Standard Chartered, pnotes that the July FOMC meeting was in line with their expectations as the fed funds target rate (FFTR) was cut 25bps, taking it to 2.25%.

• “The FOMC also announced that its balance sheet tapering would end on 1 August. We think the key change in the statement was the new phrase, “as the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information”. In contrast, the June statement said, “the Committee will closely monitor the implications of incoming information for the economic outlook”. To us, the July statement change, in conjunction with two dissenting votes (Esther George and Eric Rosengren preferred to leave rates unchanged), means that the hurdle for another 25bps cut in the near term is higher now than it was in June.
• The press conference reinforced this interpretation. Chair Powell struck a balanced tone, noting that the 25bps cut was “essentially a mid-cycle adjustment”, though he did clarify that he “did not say just one rate cut”, leaving the door open for more. Nonetheless, the Chair made it clear he does not see the current state of the economy as warranting the start of a rate-cutting cycle.
• Rather, the July decision appears to be squarely in the insurance camp, to cushion the current impact of global growth uncertainty on the economy and help return inflation to the FOMC’s 2% objective. The Committee’s outlook for the US economy remains favourable. This could change if the activity data deteriorated, the global outlook worsened, or inflation expectations plunged. We expect a second 25bps cut in H2-2019.”