ETHENEA on the upcoming Fed Meeting
Munsbach, 17 June 2019 – With the next FOMC (Federal Open Market Committee) meeting scheduled to take place on Wednesday; the Fed's Committee is currently facing both a slowdown in growth and weak inflation. One example of this is the U.S. Purchasing Managers' Index for the manufacturing sector, an early indicator of economic development, which has declined in recent months. Recently we have also seen a weaker inflation trend, with figures for May again below analysts' estimates.
In our view, this weak growth is primarily attributable to the trade dispute between the U.S. and China, which escalated further at the beginning of May with the imposition of new punitive tariffs. We already referred to this in our most recent Market Commentary video. The G20 summit in Japan on 28 and 29 June will now come into focus, as a meeting between U.S. President Donald Trump and China's head of state Xi Jinping is expected to take place on the sidelines of the summit. As the outcome of this meeting is likely to have a significant impact on the outlook for the world economy, we believe that the Fed will hold back on lowering interest rates in its upcoming meeting and will wait for the talks to continue before deciding on further measures. Postponing this discussion until its next meeting in July should give the Fed Committee a clearer picture on whether or not they will decide to lower key rates. Currently, market data is pricing in a lower federal funds rate.
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