FOMC Oct'19 meeting review - Fed cut rates, Powell put makes a comeback

Highlights of the Federal Reserve interest rate decision on October 30, 2019:

  1. Rates lowered to range of 1.50%-2.00%
  2. Markets priced in a 97% chance of a cut before the decision
  3. Prior range was 1.75%-2.00%
  4. George and Rosengren wanted no change, they were the only dissenters
  5. Uncertainties remain, will assess appropriate rate path
  6. Change of wording in the statement says it will monitor incoming info "as it assesses the appropriate path" for the target range
  7. Sets IOER at 1.55%, as expected
  8. Economic activity has been rising at a moderate rate, the same as prior
  9. Repeats that job gains have been solid, on average, in recent months, and the unemployment rate has remained low
  10. Household spending has been rising at a strong pace vs 'appears to have picked up'
  11. indicators of business fixed investment remains weak vs 'business fixed investment has been soft' prior
  12. Repeats that core and headline inflation running below 2%
  13. Says that market-based measures of inflation remain low vs 'have declined'
  14. Says 'uncertainties about this outlook remain' vs 'uncertainties about the outlook have increased'

During the press conference, USD initially fell on the headline "Monetary policy is in a good place" and his repeated mentions that it would take a 'material' shift to cut again. That meant a cut in the next few months is unlikely and it underscores that we're at the end of the mid-cycle adjustment. The dollar initially rallied but everything reversed when Powell said that it would take a "significant rise in inflation" before they start hiking again. That was a strong message they'll be on the sidelines.

This is great news if you're optimistic about growth next year and beyond. It means that so long as Powell is in charge of the Fed and inflation is under control, we're not likely to see a rate hike. It essentially meant that If there is bad news, we'll cut but if there is good news we won't hike. It's a one-way bet and it's a wonderful scenario for equities and a straight Powell put. Dollar index has weakened and we believe USD would continue to slide and in turn, also boost Gold prices.


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