Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
Singapore Sales Trader
Federal Reserve chair Jerome Powell mentioned two things in the July FOMC meeting press conference: One, this is not the beginning of a rate cuts cycle but a mid-cycle adjustment. Secondly, he also cited that there is no reason why the economic expansion can’t sustain as the overall financial stability vulnerabilities are moderate. Data in the US since July has been surprisingly towards the upside which shows that the US economy continues to expand albeit at a slower pace.
With central banks throughout the world slashing their rates, I think the only thing that is clear is the direction of the interest rate path. As for the speed of the cuts, unless we see anything drastic, delivering an aggressive 50 bps cut in a meeting would be shooting himself in the foot after what Powell said in July’s meeting even though he has a history of flipping in his short tenure so far. While we are currently standing at a 100% probability of at least a 25bps cut in the September meeting, the market appears to be pricing in an additional probability of 30% that it could be a 50bps cut instead for now.