The Fed's widely anticipated, 3rd and final "insurance" rate cut is now in the history books, and with it comes the question is the Fed's "mid-cycle adjustment" done, or is the easing only set to accelerate heading into 2020/2021 recession. The problem, of course, is that as a reminder, in the past 30 years, the Fed has never cut more than three times without the economy contracting thereafter.
So will "3 cuts and done" be enough? As Rabobank's Philip Marey notes, "we still expect a US recession in 2020 that will force the Fed to cut rates all the way to zero before the end of next year." And, as Bloomberg economist Andrew Husby notes, the market seems to agree: "as the 2-year yield reprices higher and the 10-year holds steady, flattening the curve, markets aren’t convinced the 75 bps of easing will be a sufficient mid-cycle adjustment."
Below is a handful of kneejerk responses from Wall Street strategists laying out their views on today's "hawkish cut"
Jon Hill, interest rate strategist at BMO Capital Markets
- "The Fed cut rates 25 bp and removed ‘act as appropriate’ from the policy statement. This isn’t to say that the Committee won’t cut if needed in December, but this is a clear signal that the bias is not as skewed toward additional easing as it has been in recent months", said Hill summarizing the consensus "hawkish cut" take.
- "The general characterization of the economy was nearly unchanged; look for Powell to exert a more patient bias as the lagged impact of the mid-cycle adjustment works its way through financial conditions and economic activity."
Andrew Husby, economist at Bloomberg:
- "In removing “will act as appropriate” the statement shows members are attempting to move away from an active stance, putting more emphasis on monitoring."
- However, as Husby notes, "as the 2-year yield reprices higher and the 10-year holds steady, flattening the curve, markets aren’t convinced the 75 bps of easing will be a sufficient mid-cycle adjustment."
Win Thin, head of FX strategy at Brown Brothers Harriman:
- The "subtle Shift" in the Fed’s language reduces December rate cut odds; the Federal Reserve’s omission of its pledge to “act as appropriate” reduces the odds that the central bank will cut again this year.
- "I think the Fed is saying it will wait for new information before cutting again,” Win says in an emailed note. "I don’t see another cut in December unless the data really fall off a cliff." That will be "dollar-positive."
Ira Jersey, interest rate strategist at Bloomberg Intelligence:
- "Although the Fed’s statement was basically in line with our expectations, the market appears to be taking the news a modestly less dovish than expectations. The same two dissenters should not be a surprise."
- "We don’t expect any major rate market response from this, but as has been typical of late, the press conference may be more market moving."
Rishi Mishra, fixed income analyst at Futures First:
- "The language describing the economy is a bit too upbeat...it should have changed" said Mishra.
- "They are trying to sell the idea of a resilient economy a bit too hard. I mean labor market remains strong, job gains have been solid...hardly! 2s10s flattened -- I think that is because it's hard to buy that assessment."
Neil Duta, head of economist at Renaissance Macro:
- "The only measure of longer-term inflation expectations that is “little changed” is the Survey of Professional Forecasters" said Dutta, noting that "surveys of consumers and households are definitely not little changed.”
Eliza Winger, Bloomberg Economics Associated:
- "Bloomberg Economics expects Powell to leave the door open to additional easing in the press conference. The reality of slowing global and domestic growth prospects will compel the Fed to act again. We believe further easing is warranted."