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Statement

We expect a new target range for the benchmark rate

Munsbach, 16 September 2019 – Not even the Fed's first interest rate cut in July was able prevent the mood of purchasing managers in the U.S. manufacturing sector from entering negative territory. The new trade tariffs with China that came into force on September 1 - and those planned for later in the year - are definitely continuing to unsettle the managers. This increased uncertainty in the manufacturing sector has fuelled fears of an approaching U.S recession, with the inverted U.S. yield curve delivering yet another warning signal.

We therefore expect the Fed to lower the target range for their benchmark interest rate by a further 25 basis points at its meeting on 17 and 18 September, resulting in a reduced range of 1.75% to 2%.  However, given the current low unemployment rate, rising wages, and a service sector that continues to prosper, we consider it unlikely that the Fed will introduce more significant interest rate measures at its upcoming meeting. Although U.S. consumer sentiment has fallen slightly recently, it remains at an above-average level. As private consumption accounts for approximately two thirds of U.S. economic output, consumer confidence development is a decisive factor for both the growth of the U.S. economy and the likelihood of further interest rate cuts in the coming months. The inflation rate is currently less relevant than the further development of interest rates, even though the core rate of consumer prices rose by 2.4% in August. Lower energy prices are currently making life easier for consumers.