Is the Federal Reserve about to disappoint investors — and a US president — eager for interest rate cuts?
Judging by the prices of futures, markets are expecting the US central bank to cut rates several times this year in response to signs of a weakening economy at home and tensions abroad. Few economists expect a rate cut as early as this Wednesday, when the Fed presents the results of its June policy meeting, but there is anticipation that governor Jay Powell and co could signal a tilt towards monetary easing.
Tiffany Wilding, a Newport Beach-based economist at Pimco, the $1.8tn-in-assets firm, said in a recent note to clients that in a “worst-case scenario” involving rising trade tensions, “we wouldn’t expect Fed officials to wait for the economic data to confirm declining US growth. If they do, they could risk a more meaningful shock to economic activity.”
But the big banks on Wall Street are less sure. While economists at some institutions, including Bank of America and JPMorgan see cuts ahead, others including Goldman Sachs and Morgan Stanley do not expect conditions to worsen to the point that would require action from the central bank.
Still, the economists cautioned that their outlooks could change, should there be any deterioration in the ongoing dispute between the US and China.
“Conditional on the trade war . . . not escalating further (which is a very big if) our call is for no cuts this year,” said Seth Carpenter, US chief economist at UBS’s investment banking unit. “The context is very, very important here.”