Markets are still interpreting comments from NY @federalreserve Pres. John Williams as being indicative of dovish #Fed policy action, despite the central bank’s defense that these comments stemmed from long-term research. We think the #market is right to price in easing.
The central bank is considering significant #easing, but recent strength in June payrolls, and the bounce back in goods pricing in the last #CPI, suggest that it is not solely U.S. weakness driving the narrative, but preventive action based on fear of global slowing.
In line with our view that a rate cut is likely, we would point out that even with the decent Core #CPI number, Core #PCE is projected to be just under 1.7%, which is still well below Fed target.
Further, many other #economic indicators point to greater #uncertainty for the outlook: indeed, U.S. Manufacturing ISM has decelerated dramatically from 60.8 in August 2018 to 51.7 in June 2019, its lowest print since 2016…
U.S. @ism Prices Paid decelerated from 79.5 in May 2018 to 47.9 in June 2019, and U.S. ISM New Orders decelerated from 67.3 in December 2017 to 50.0 in June 2019, illustrating both a broad-based slowing of #growth and heightened uncertainty about its future path.
As Chair #Powell has repeatedly said, maintaining the economic expansion is a top priority for the #FOMC: a 50 bps cut is still quite possible.
In fact, markets have been recently pricing in a meaningful monetary policy accommodation cycle from many of the world’s central banks, so if the #Fed were not to move, it would likely shock #markets, and undermine a good amount of the global easing expected in the year ahead.
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