Fed will be cutting rates soon, probably July and October

After the 2-day meeting, the FOMC decided to keep the Fed Funds rate unchanged as expected at 2.25%-2.50%. The statement signaled that it could ease monetary policy if the outlook worsens. Analysts at Wells Fargo concur with the seven committee members that think rates will be 50 bps lower at the end of the year.

Key Quotes:

“In March, none of the 17 FOMC members looked for rates to be lower at the end of 2019. The dot plot that was released today indicated that one committee member looks for rates to be 25 bps lower by the end of the year, and seven members expect that rates will be 50 bps lower at the end of 2019. The change in the dot plot reinforces our view that the Fed indeed will be cutting rates soon.”

“We expect that the FOMC will cut its target range for the fed funds rate 25 bps at its next meeting on July 31. We also look for another 25 bps rate cut in the fourth quarter, probably at the October 30 meeting.”

“The continued undershoot of inflation below the Fed’s target and the relative lack of conventional “ammunition” argue for more accommodative monetary policy in an environment of uncertainty.”

“Our overall macroeconomic forecast is predicated on the assumption that uncertainty related to trade policy continues to linger. If, however, President Trump and Chinese President Xi agree to a trade deal next week at the G-20 that eliminates the tariffs that both countries have levied on the other side, then the need to cut rates may dissipate. On the other hand, however, if negotiations completely break down and the United States levies tariffs on the remaining $300 billion worth of Chinese imports, then the FOMC may need to cut rates more than 50 bps.”

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