Elliot Clarke, senior economist at Westpac, notes that the minutes of the June FOMC meeting and Chair Powell’s Semiannual Monetary Policy Report to Congress provided support for the view that the July meeting will see a federal funds rate cut, and that further easing will follow in due course.

Key Quotes

“From the June meeting minutes, “Although nearly all members agreed to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent at this meeting, they generally agreed that risks and uncertainties surrounding the economic outlook had intensified and many judged that additional policy accommodation would be warranted if they continued to weigh on the economic outlook”.”

“From “if they continued to weigh”, it is clear that a further deterioration in conditions is not necessary to justify a cut. Instead, the threshold is simply that current uncertainties persist.”

“From Chair Powell’s appearance before Congress, this seems a near certainty ahead of the July meeting, with the global cross-currents seen as numerous and largely open-ended in nature.”

“In Chair Powell’s view, “uncertainties about the outlook have [actually] increased in recent months. In particular, economic momentum appears to have slowed in some major foreign economies… [and] a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit”.”

“To be clear, policy easing is not warranted merely because these uncertainties exist, but rather as there is clear evidence they are affecting the US economy, particularly business investment.”