Data-Dependent Fed Cuts Rates, Will “Assess” Path Going Forward

While the assumption is that Fed officials (having passed on the opportunity to lean against market expectations) vote for a rate cut (96% odds and Fed has never surprised at that level), the big question is whether this will be the last rate cut for the foreseeable future.

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Since The Fed cut rates in September, stocks have outperformed as the dollar, bonds, and gold have lost some ground…

The yield curve has steepened (back into un-inversion) since The Fed cut in September…

Source: Bloomberg

The “cut-and-pause” narrative is priced across the FF curve…

Source: Bloomberg

But, the stock market and Fed Funds market are disagreeing over how much easing is priced in…

Source: Bloomberg

While we had a stronger than expected GDP print today, US Macro has been notably disappointing since the September cut…

Source: Bloomberg

Having said that, the size of bets on The Fed getting back to ‘zero’ have been rising…

Source: Bloomberg

One excuse The Fed had for cutting rates has faded as the odds of a trade deal have risen…

Source: Bloomberg

And finally, before we get to what Powell actually did today, we note that the repo-calypse is very much not under control yet…

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So What Did The Fed Do?

As expected, and priced in, The Fed cut rates 25bps and shifted the wording in the statement to a more hawkish stance…

From:

“…will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.”

To:

“The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

Two dissents – Rosengren and George – who were both in favor of no cuts.

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