2 U.S. Rate Cuts This Year – We’ve Changed Our View

2 U.S. Rate Cuts This Year - We've Changed Our View

Summary Plotting a new course. Economy feeling the strain from trade tensions. The Fed’s shift. Trade remains key. Rate cuts are coming. Trump needs a deal. By James Knightley Trade worries are not abating and the economy is starting to feel the strain. The Federal Reserve is preparing for a change of course and we now look for 50bp of rate cuts in 2H19 Plotting a new course Over the past month, the debate surrounding the outlook for Federal Reserve interest rate policy has swung from "if" they will cut to "when" they will cut rates. Trade tensions look set to persist and recent data suggests the economy is more vulnerable to the fallout than it was in the second half of 2018. With senior policymakers opening the door to action, we now expect the implementation of the "Fed put" with pre-cautionary September and December rate cuts. Economy feeling the strain from trade tensions The combination of the US administration’s more belligerent position on trade with China and the willingness to use the threat of tariffs as a means of achieving non-related political "wins" (such as with Mexico and immigration) has only intensified concerns about the prospects for the US economy. There is a growing risk that the uncertainty surrounding global trade leads to a sense of paralysis in corporate America that prompts a broader economic slowdown. Do firms go through the expensive process of on-shoring production back to the US or looking for non-Chinese suppliers only to find […]

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