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The FOMC statement for the October 2019 meeting

FOMC statement for the October 2019 meeting…

October 30, 2019

Federal Reserve issues FOMC statement

For release at 2:00 p.m. EDT

Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against this action were: Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range at 1-3/4 percent to 2 percent.

Implementation Note issued October 30, 2019

Federal Reserve FOMC decision due Wednesday – preview

Via Société Générale, in brief:
  • Fed… likely to cut
  • A more favourable economic outlook, however, suggest two things: First, that recent rate cuts were offered only as an insurance policy and second, that the Fed is likely to pause on any further rate moves. 
  • We see any such pause as short lived. 
  • By spring 2020, economic evidence should, in our view, compel further rate cuts.
  • Balance sheet details are also a key item.
Federal Open Market Committee meet Wednesday 30 October 2019 

USD up trend is 99 months old soon. Is it over? No, another 12-24 months still to come

The headline is the in summary version of a client note from UBS on the US dollar.

Its a detailed look at the US dollar trend, but adding to the to the headline points in brief.
When and how the dollar might turn is anyone’s guess
  • longterm dollar trend …  As of last month, it was still levying upward pressure … did not appear to be waning materially
  • medium term trend  …  duration of 2-5 years … more or less mirrors intra business cycle growth surges and slowdowns
  • shorter term one that averages about a year…. seems to relate to shocks caused by politics and supply disruptions to commodities … a modest dollar drag today … could reflect the … trade war coming home to roost and the drag on Chinese leading indicators passing, as fiscal stimulus from tax cuts and modest credit easing have begun to filter through

Here is what a US-China ‘currency pact’ would mean for the dollar and the yuan

Morgan Stanley (this via Bloomberg) say a pact is likely to weaken the USD and strengthen the Chinese yuan.

Well, yeah.
More:
  • could lead to broad based USD weakness, especially benefitting China-proxy currencies
  • yield curves would get steeper
  • yen would weaken
MS say it’d be a ‘Plaza Accord’ lite.
A bit of a summary if its of interest.

Ahead of the FOMC minutes this week, a forecast of an October rate cut

UBS are citing the US slowdown to potentially arrive sooner than expected

  • Which, they say, opens the door to a Fed funds rate cut in October.
(Federal Open Market Committee meeting is October 29 and 30)
Citing trade tension with China –  a substantial shock to the economy – tariffs causing a slump in private demand
  • tarfifs weakening employment in manufacturing, retail
Following that the bank expects further cuts in:
  • January, March and June 2020
  • And also say that due to the run of recent data there is risk is to the downside for the Fed to cut more.

Brazil’s central bank cuts benchmark rate by 50bps

Banco Central do Brasil: “That’s not a rate cut, THIS is a rate cut!”

50bps cut from Brazil’s central bank.
  • decision was unanimous
  • consolidation of benign inflation outlook should give room for additional policy stimulus
  • says economic data since last meeting consistent with gradual recovery
  • global economic outlook uncertain, risks of greater slowdown persist
  • underlying inflation at comfortable levels
  • sees inflation moving back to target over the relevant time horizon, which includes 2020 calendar yearbut sees inflation risk in both directions

Headlines via Reuters

Cut to 5.5%, which I think is the lowest seen in Brazil?

The FOMC September 2019 full statement

FOMC statement from the September 2019 rate decision

Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.

The 3 reasons EUR has bottomed against the USD and yen

A quick snippet from Mizuho in Japan on the euro. Citing three reasons it has bottomed out:

  • European Central Bank’s easing options are limited
  • Brexit uncertainties a negative for GBP against EUR
  • Chatter of fiscal stimulus
On the ECB:
  • to hold back from restarting asset purchases on Thursday
  • likely to cut negative policy rate further, to -0.5%, but room for further cuts is limited
Forecast:
  • 1.15 possible by year-end
A quick snippet from Mizuho in Japan on the euro. Citing three reasons it has bottomed out:Last one for Dr. D

JP Morgan think progress in US-China talks is unlikely

JP Morgan on the upcoming talks between the US and China.

  • We are more sceptical
  • still see risks to our growth outlook for 2H 2019 skewed to the downside
JPM that a deal could be struck at the ministerial level talks in mid-Oct and “activity get a cyclical bounce into year end”. But:
  • “Are either likely? No.”
Based on what we have seen come out of US-China talks so far I find it difficult to disagree with JPM.