Rate cut and wait and see approach
- The market is currently pricing a very high probability (92%) of the Fed cutting rates. Historically speaking, the Fed has always delivered with such high probability and we see no reason why it would be different this time.
- We expect few changes regarding the wording of the accompanying statement, reaffirming they “will act as appropriate to sustain economic growth”.
- Since the last FOMC meeting, US economic data signaled a deceleration in terms of activity with the ISM non-Manufacturing index heading lower, payroll growth slowing and disappointing retail sales.
- On the international front however, geopolitical tensions have eased. Brexit risk has diminished and US- China trade talks have progressed. However, we think uncertainty remains too high for the Fed to acknowledge this in its statement.
All in all and considering recent moves, we think US rates could be marginally lower after the FOMC meeting.