FED: Three arguments for a rate cut – Nordea

FXStreet reports that analysts at Nordea have changed their forecast. They still expect the Fed to cut, but in June, as March is probably too early given the lack of FOMC speak on the subject and the generally positive key figure surprises during the first week of February.

"Growth is likely to slow below its potential in the first half of the year. So far, the labour market has held up despite the slowing economy, but we believe it will be a matter of time before the labour market weakens to reflect the slowdown."

"Tapering of the short-term liquidity provisions is planned for the coming months and, in turn, the balance-sheet expansion will be much more moderate."

"Market expectations have moved in favour of rate cuts. Minutes from the January FOMC meeting showed that the Fed attributed the 30bp implied drop in policy rates by year-end at that time as a combination of market participants expecting unchanged rates and seeing risks tilted heavily towards cuts rather than hikes."

"While not in itself an argument for a rate cut, we do believe the market consensus is wrong to believe monetary policy inaction during an election year. The Fed changes policy when policy changes are necessary."