The FOMC start their two day meeting today, Tuesday with a final interest rate decision to be announced on Wednesday.
The outcome of this meeting frequently affects markets and this one will hold no exception as investors anticipate another reduction – but will it come?
Trump wants a substantial rate cut
Markets generally expect the Federal Reserve to approve a 0.25% rate cut Wednesday. Chances are rising, though, of no there being no move at all, with markets calculating a greater probability of the Fed doing nothing.
If Trump were to have his way, there would have already been a 0.5% cut – instead we got a 0.25% reduction in July. After that reduction Trump would likely demand a further reduction probably down to zero or even below. He’s looking for a substantial cut this time too!
President Trump hasn’t held back in his criticism of Fed chair Jerome Powell having released a scathing barrage of comments in recent weeks.
My view
Difficult to call this one as sentiment has moved again. But I feel a cut of 0.25% is more likely than not – either way, it will move markets regardless.
Tariff turmoil to tariff talks
We have, in a matter of just a few short weeks, gone from tariff turmoil to tariff talks again. Right now we have analysts suggesting we are seeing better than expected economic data, a thawing in U.S. – China trade tensions (again) and a more stable inflation figure.
Rising inflation may suggest the Fed is more likely to tighten policy or ‘hold the line’ rather than to cut interest rates. The situation has changed again since the last meeting, especially that of sentiment.
We also saw on Monday, energy prices surge adding to ‘a feeling’ that the Federal Reserve suddenly might not be in such a hurry to cut interest rates too quickly again, just yet.
Less dovish view
All this ‘data’ is now contributing to a less dovish view overall. If the Fed cut again now – it would make the argument to cut again in the next month or two much more difficult.
Maybe the Fed will hold this cut and wait? I doubt it. I can also see a rate cut in November/December if global trade concerns worsen over the next few months. And remember, Jerome Powell stated in his last press conference that the U.S. was NOT facing a recession.
No cut needed then…?