Another rate cut likely – and then what…?
How likely is it that the Federal Reserve will cut interest rates for the third time in a row as US stock markets touch all time records?
The general consensus among market analysts and pundits alike appear to suggest a cut is widely expected. Indeed, the percentage probability hit around 90% in favour of a 0.25% interest rate cut last week.
However, with the U.S. markets in ‘full steam ahead’ mode and the S&P 500 touching a new all time high – there is room for the Fed to disappoint. Three rate cuts in a row – is it necessary?
Why cut rates when U.S. markets are so high?
Insurance policy?
A third cut could be seen as justified as an insurance policy against a possible recession (in Europe maybe )and preempt a potential global slowdown. There is room for the Fed to do this.
U.S. – China trade deal?
Concerns still linger around the U.S. – China trade war despite recent positive moves to strike a deal in the guise of the ‘phase one’ offering.
There are also noises suggesting the recent U.S. – China deal is strained. Is there doubt around China buying more U.S. farm product such as soybean for instance?
Impeachment?
President Trump faces an impeachment inquiry.
Elections and Brexit?
The U.S. is preparing for a 2020 election.
UK Brexit concerns sit heavy and now the UK is about to enter a snap election (referendum by proxy) to attempt to resolve the Brexit paralysis consuming parliament.
Repo liquidity?
Recent reports of ‘liquidity issues‘ in the repo market.
U.S. GDP?
GDP figures are due from the U.S. today
Decision
Will Jerome Powell’s decision be data dependant? The FOMC didn’t all appear to be on the same page at the last policy meeting from information later released?
A rate cut is highly anticipated – but if it isn’t delivered we could see a significant market pullback, albeit temporary. However, if the Fed delivers the highly expected cut – then what?
The FOMC decision is due at: 18:00 GMT 30th October 2019
The only definite here, judging by Donald Trump’s recent tweets, is that he is 100% in favour of a rate cut.
Next up
GDP data to be released today (Wednesday), followed by the U.S. Fed interest rate decision and then jobs data report due Thursday (jobless claims) and Friday (non-farm payroll) data is due.