Via the excellent Damian Boey at Credit Suisse:
As expected, the Fed cut is policy rate range overnight by 25bps to 1.5-1.75%. The accompanying meeting statement, and commentary from Chair Powell were not dovish, and arguably even slightly hawkish:
- Officials removed the sentence saying “that the Fed will act as appropriate to sustain the expansion”, replacing it with a more nuanced suggestion that it will “assess the appropriate path of the Fed funds rate”. In other words, the Fed has moved from a blanket commitment to do whatever it takes to support the economy (and perhaps markets), to a more neutral, “wait and see” or data dependent position. Presumably, the change has been prompted by evidence that the economy is not imminently heading into recession (eg regional Fed manufacturing surveys, ongoing job creation, housing market strength, robust trend consumption growth), and some progress in US-China trade negotiations.
- Powell later suggested that the Fed will not be considering rate hikes unless there is evidence of a really significant move up in inflation that is persistent. This comment reinforced the more neutral wording of the Fed statement, and suggests that the Fed thinks it is done cutting for now. By the same token, the Fed does not see itself raising rates for an extended period of time, because it is arguably pre-committing to getting behind the curve when it comes to inflation.
All in all, the Fed has at the very least made it clear that the bar has been set higher for further rate cuts.
