• Skip to main content
  • Skip to secondary menu
  • Skip to primary sidebar
  • Skip to footer
  • Canada
  • United Kingdom
  • Subscribe
  • facebook
  • instagram
  • RSS
  • RSMUS.com

The Real Economy Blog

Search

  • Economics
  • Technology
  • Consumer
  • Industrials
  • Finance
  • Real Estate
  • Health Care
  • Life Sciences
Home > Economics > Expect the Fed to cut its target rate by a quarter point

Expect the Fed to cut its target rate by a quarter point

Oct. 28, 2019 by Joseph Brusuelas

  • email
  • Twitter
  • Facebook
  • Linkedin

We expect the Federal Reserve to cut the federal funds rate this week by 25 basis points to a range between 1.50% to 1.75% as the central bank attempts to offset the downward drag of the trade conflict and challenges in the domestic manufacturing sector.

But policymakers, investors and firm managers should not expect clarification on the direction of policy in the Federal Open Market Committee monetary statement. Rather, we expect that the Fed will maintain the phrase “will act as appropriate to sustain the expansion.” Given the deceleration in third quarter growth below the long-term trend growth rate of 1.8%, recession in both the manufacturing and agricultural sectors, global economic headwinds and an erratic policy landscape in Washington, this would tend to suggest that the Fed will want leave a December rate cut on the table should conditions not improve.

Soft inflation readings, falling inflation expectations, a deteriorating global economy and slowing overall consumer spending all point to little to no upside risk on the inflation outlook anytime soon.

That being said, Federal Reserve Chairman Jay Powell’s post-meeting news conference is where the trading community will attempt to ascertain if the Fed will end the mid-cycle adjustment after the October rate cut. In our estimation, this may prove a disappointment for investors looking for the all-clear signal, and it is highly probable that Powell sticks to his data-dependence position.

In many ways the period between FOMC meetings has strengthened the case not only for a rate cut in October, but a cut in December as well. Soft inflation readings, falling inflation expectations, a deteriorating global economy and slowing overall consumer spending all point to little to no upside risk on the inflation outlook anytime soon. Moreover, given the uncertainty surrounding the so called “phase one” trade deal with China, the Fed has every reason to act to offset the damage to the domestic economy caused by trade policy.

In the September FOMC minutes, some participants noted a need for clarity around when rate cuts would end. We think that represents a small, yet loud, hawkish contingent at the Fed. While that may represent one portion of the spectrum of opinion among market participants and policymakers, we do not think that the majority on the committee will bend to that preference and there will be little addition to the forward guidance in the statement.

With the committee split into several factions, we expect Kansas City Fed President Esther George and Boston Fed President Eric Rosengren to provide hawkish dissents. We do not expect a second straight dovish dissent by St. Louis Fed President James Bullard.

  • email
  • Twitter
  • Facebook
  • Linkedin

Related posts

  • FOMC preview: Fed positions for rate cut later this year

    The Federal Reserve is on the precipice of a major shift in policy as the economy, hiring and wages slow amid a backdrop of muted inflation.

  • BDCs' popularity unlikely to be slowed by recent Fed rate cut, but headwinds remain

    Business development corporations are unlikely to lose their momentum in the near term, despite last week’s interest rate cut by the Federal Reserve and the ongoing trade conflict with China.

  • Fed cuts interest rate, but does not commit to more

    The Federal Reserve reduced its targeted federal funds rate by a quarter point to a range between 1.5 and 1.75 percent at its October meeting Wednesday. In its policy statement, the committee removed the phrase “act as appropriate,”…

Filed Under: Economics Tagged With: federal funds rate, federal open market committee, Federal Reserve, FOMC

About Joseph Brusuelas

@JoeBrusuelas

Joe Brusuelas, “chief economist to the middle market,” is the preeminent voice championing issues and policies facing midsize companies in the United States and around the world. An award-winning economist, Brusuelas has more than 20 years’ experience analyzing U.S. monetary policy, labor markets, fiscal policy, international finance, economic indicators and the condition of the U.S. consumer.

A member of the Wall Street Journal’s forecasting panel, Brusuelas regularly briefs members of Congress and other senior officials regarding the impacts of federal policy on the middle market and the factors by which middle market executives make business decisions. He also frequently offers his insights on the U.S., Canadian and global economies in the financial media. In 2020, he was named one of the 100 most influential economists by Richtopia.

Before joining RSM in 2014, Brusuelas spent four years as a senior economist at Bloomberg L.P. and the Bloomberg Briefs newsletter group, where he co-founded the award-winning Bloomberg Economic Brief. Earlier in his career, he was a director at Moody's Analytics covering the U.S. and global economies for the Dismal Scientist website. He also served as chief economist at Merk Investments L.L.C. and chief U.S. economist at IDEAglobal.

Primary Sidebar

Other Regions

  • Canada
  • United Kingdom

Categories

  • Economics
  • Technology
  • Consumer Products
  • Industrials
  • Financial Services
  • Real Estate
  • Health Care
  • Life Sciences

Recent Economics articles

  • FOMC meeting: Fed adds to debate on further fiscal aid Jan. 27, 2021
  • Economic recovery drives up raw material prices Jan. 27, 2021
  • CHART OF THE DAY: U.S. durable goods orders rise for eighth straight month Jan. 27, 2021

RSMUS.com links

The Real Economy

Middle Market Business Index

MMBI Special Reports

Footer

  • Facebook
  • Instagram
  • RSS

About The Real Economy Blog

The Real Economy Blog from RSM US LLP was developed to provide timely economic insights about the middle market economy. It is offered as a complement to RSM’s macroeconomic thought leadership, including The Real Economy monthly publication and the proprietary RSM US Middle Market Business Index (MMBI).

© 2021 RSMUS.com | Privacy Policy | Cookie Policy

The Real Economy Blog
  • Economics
  • Technology
  • Consumer
  • Industrials
  • Finance
  • Real Estate
  • Health Care
  • Life Sciences