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Fed Seen Cutting Rates Twice More in 2019 Before Holding Steady

Fed Seen Cutting Rates Twice More in 2019 Before Holding Steady
(Nuthawut Somsuk/Dreamstime)

Friday, 13 September 2019 08:19 AM

U.S. central bankers will trim interest rates by a quarter percentage point next week, and again in December, before leaving the target range for their benchmark rate at 1.5%-1.75% for an extended period, according to economists surveyed by Bloomberg.

“The Fed does not want to underwrite the ongoing trade war, but has no choice but to try to buffer the economy from the deleterious impact of rising trade uncertainty and tariffs,” Kathleen Bostjancic, an economist at Oxford Economics in New York, wrote in comments accompanying her responses.

In the Sept. 9-11 poll of 35 economists, respondents lowered their projections for the path of U.S. rates compared to a similar survey in July. However, they firmly rejected the idea the Federal Reserve had begun a series of moves that will prove more prolonged than the “mid-cycle adjustment” that Chairman Jerome Powell predicted in July, when the Federal Open Market Committee cut for the first time in more than a decade.

Investors also expect the FOMC will cut again when officials gather in Washington Sept. 17-18. Powell and others have continued to speak about mounting risks to the economy posed by the U.S.’s international trade disputes and slowing global growth, as well as persistently below-target domestic inflation. At the same time, Powell has said he doesn’t expect the U.S. or the world economy will stumble into a recession.

The survey results aligned with those views. Asked about the balance of risks to growth and inflation, 88% of respondents said they were tilted to the downside. That compares starkly with a year ago when just 16% of economists held that view.

Respondents also identified international trade disputes as the greatest threat to U.S. economic growth through the end of next year, followed by weaker global demand. Still, only two respondents predicted the cuts underway would eventually bring rates to zero. Just one predicted the Fed would drop nominal rates below zero.

Fed officials received poor-to-middling marks from economists on how well they have communicated monetary-policy strategy over the past year. Grading Powell, more economists selected “needs improvement” than any other response. Marks were slightly higher for the FOMC as a group, with “good” gathering the most responses.

“The format of the press conferences is fine, but the messaging has been inconsistent,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, who, after Powell’s July press conference, called that performance a “disaster.”

“Admittedly, this is a difficult period for setting Fed policy, but, overall, the messaging just needs to be crisper,” he said.

Asked how Powell could improve the FOMC press conference and the presentation of supporting data, more than any other option, respondents chose “do more to communicate confidence levels behind baseline forecasts.”

The survey also queried economists about how the Fed is likely to respond if, in a recession, officials believed lowering rates to zero wouldn’t be enough to revive the economy.

The majority said the Fed will again provide explicit forward guidance and conduct large-scale asset purchases, or quantitative easing. A notable minority of 11 said officials would turn to yield-curve control, a version of QE that involves setting a target yield for long-term securities.

Economists, as in previous surveys, roundly dismissed the notion that President Donald Trump’s public criticism of the Fed would affect monetary policy decision making.

© Copyright 2019 Bloomberg News. All rights reserved.

   
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Economy
U.S. central bankers will trim interest rates by a quarter percentage point next week, and again in December, before leaving the target range for their benchmark rate at 1.5%-1.75% for an extended period, according to economists surveyed by Bloomberg.
fed, rates, cut, twice
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2019-19-13
Friday, 13 September 2019 08:19 AM
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