Fed will most likely cut rates next week – Nordea

According to analysts at Nordea Markets, the US Fed will most likely cut rates for a third consecutive time next week and a lot of attention will be given to Powell’s wording of possible future rate cuts and whether recent liquidity announcements are in fact QE or not.

“We expect the Fed to cut for a third consecutive time at next week’s FOMC meeting. When re-assessing the three reasons the FOMC gave in July and September for cutting rates – i) signs of deceleration in economic activity, ii) prudency from a risk-management perspective and iii) the inflation outlook – we think a rate cut is warranted. Key figures have clearly turned to the worse since the September meeting. The latest ISM prints from both the manufacturing and non-manufacturing sector were big disappointments, while, for instance, the long-term inflation expectation measure from Michigan University reached an all-time low. Overall, we think there should be little doubt that the Fed will cut again next week. If the Fed is by any means true to its word of being data dependent, a cut will be delivered. A conclusion that is firmly shared by the markets which price in a rate cut probability of ~90%. The Fed has never failed to deliver a cut with such a high probability. The Fed will most likely again be divided in its decision to cut rates by 25 bp. We expect both George and Rosengren to dissent wanting rates unchanged, while Bullard could favor a 50 bp rate cut (only taking 2019-voters into account here).”