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ETHENEA: we expect the Fed to lower the Fed Funds rate

Munsbach, 29 July 2019 – There is no doubt that this week's focus will be the Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday. Although both the service sector and private consumption continue to support U.S. economic growth, the ongoing trade dispute with China is keeping uncertainty, particularly in the U.S. manufacturing industry, high. This is fuelling concerns of a slowdown in both the U.S. and global economies, due to spillover effects.

On several occasions, Fed Chairman Jerome Powell has made it clear that he considers cuts to the Fed Funds rate an appropriate measure to counteract the concerns of a weakening global economy, continued trade tensions, and low inflation rates. However, there have also been questions as to whether the Fed will lower the target range for the Fed Funds rate by 25 or by 50 basis points. Comments from various Fed representatives, as well as more recent positive U.S. economic data, have increasingly cast doubt on a rate cut of 50 basis points and, at ETHENEA, we expect a 25 basis point rate cut to be announced on Wednesday. This would reduce the target range for the Fed Funds rate to 2.0 - 2.25 percent. Should the aforementioned uncertainty factor remain unresolved, we consider further rate cuts likely.