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FOMC minutes & Powell Testimony confirm Fed rate cut in July
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After two crucial events on Wednesday this week - (a) FOMC minutes for the policy meeting conducted on June 18-19 and (b) Fed Chair Powell testimony at the House of representatives, the US policy is set to turn accommodating and a minimum of 25bps rate cut is done deal from the Fed meeting due in July end.

The FOMC minutes confirmed the rationale behind the change in ‘dot plot’ and new guidance that was provided in the post policy statement. Besides, the Fed Chair’s testimony indicated that the Fed would look through the recent upside surprise in the payroll reading for June-2019 and move to accommodate the economy. His message in the testimony was similar to what was indicated in the minutes.


Key takeaways from FOMC minutes

  1. The FOMC minutes showed that substantial emphasis was provided to the headwinds from ‘global developments’, ‘trade policy’ and ‘faltering business sentiment’. Hence, ‘uncertainties and downside risk surrounding the economic outlook’ were deemed ‘to have increased considerably’. 
  2. Majority of the FOMC members felt that the outlook for domestic consumption remains strong. However, concerns were expressed about the impact that tariffs could have on spending with ‘several participants noted that tariffs could eventually become a drag on consumer durables spending’.  
  3. Majority of participants felt that financial conditions remained supportive of growth but that improvement was ‘premised on expectations that the Fed would ease policy in the near-term to help offset the drag on economic growth’. Hence, it could emerge as an important consideration for the Federal Reserve in setting monetary policy. 
  4. The minutes showed that ‘many participants indicated that the case for somewhat more accommodative policy had strengthened’ and that ‘many judged additional monetary policy accommodation would be warranted in the near term.

We continue to emphasize that the majority of US economic indicators, with the exception of the payroll release, has continued to indicate that the momentum is slowing and a rate cut in July can be followed by another one in Sept or Dec 2019 Fed meeting. 


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