The Fed cuts rates, but further easying requires a deeper slowdown.

The Fed delivered a hawkish cut at its October meeting. The central bank bets on the improvement of the global political outlook, and that this would lift sentiment enough to keep activity running at the current pace. According to chair Powell, monetary policy stance is then “in a good place”: further cuts would be needed only in case data turn out to be much worse than expected.

Highlights:

  • As expected the Fed cut rates by 25 bps. However, the subsiding of political risks has convinced the Fed to pause easying.
  • The moderate growth outlook is confirmed as well as that of inflation very gradually converging to the 2% target. The (tentative) softening in global uncertainty has reduced the downside risks to this outlook, which motivated the series of rates cuts.
  • After this hawkish twist, the cut we penciled in for December is likely be moved into Q1 2020, as we expect by then a more pronounced slowdown of the economy.

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THE FED CUTS RATES, BUT FURTHER EASYING REQUIRES A DEEPER SLOWDOWN.

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