U.S.: Fed holds, but hints strongly that cuts are coming

5 min
Dan North
Dan North Senior Economist for North America

As expected, the Federal Reserve held the Fed Funds interest rate unchanged but hinted at rate cuts in the near future. Euler Hermes believes that there will be two cuts this year with the first one coming at the July meeting if no agreement takes place between China and the US during the G20 summit in Japan at the end of June 2019. The accompanying statement dropped the word “patient” which had been used for some time to describe the Fed’s approach to deciding on interest rate moves. It also downgraded the outlook for the economy from "solid" to "moderate", said that there were now "uncertainties" for the outlook, and that inflationary expectations had "declined". Projections for inflation for 2019 were downgraded from 1.8% to 1.5%. More importantly, the "dot plot" indicated that 8 of 17 Fed members now see at least one cut this year, and 7 see two cuts. In March none of them had expected a cut. Finally, there was a dissent on the vote for the first time in the Powell era. St. Louis Fed President James Bullard wanted to cut rates immediately. Overall the decision and the accompanying materials suggest an imminent rate cut as the Fed faces a slowing economy, below-target inflation, and trade concerns.