Fed expected to cut rates twice more this year: Why it matters


Wall Street widely expects the Federal Reserve to cut interest rates two more times this year in order to stave off an economic slowdown triggered by the U.S.-China trade war, before holding borrowing costs steady in 2020.

Investors are currently pricing in an 86 percent chance of a quarter-basis point cut during the U.S. central bank’s meeting next week. But another 82 percent believe there could be a third modest cut this year, either during the Federal Open Market Committee’s meeting in October or December.

“The combination of moderation in the overall economy plus heightened risks centered on trade and a European recession should prompt a rate cut from the FOMC in September, as a failure to do so would rattle markets and drive domestic recession fears higher,” Curt Long, chief economist at the National Association of Federally-Insured Credit Unions, said at the end of August.


The Fed lowered the benchmark federal funds rate in July for the first time in more than a decade, spurring questions about whether policymakers were at the start of a lengthy rate-cutting cycle. At the time, Fed Chairman Jerome Powell cited “global developments in the economic outlook as well as muted inflation pressures” as the reason for the more-dovish monetary policy, but would not commit to additional cuts.

But in the months since that July meeting, the U.S. economic outlook has continued to darken. The closely watched yield curve inverted (an occurrence that’s historically preceded a recession), lower-than-expected jobs numbers in August suggested the labor market is beginning to stutter and manufacturing shrunk for the first time in more than three years. Heightened trade tensions between the U.S. and China, meanwhile, continued to rattle global markets.

The Fed’s decision comes Sept. 18 at 2 p.m. ET and will be followed by a press conference hosted by Powell, who will likely shed light on policymakers’ decision-making process moving forward.


Source: Fox Business

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