Fed Cuts Rates as Expected, Signals Pause in Rate Changes

 

FOMC cuts rates as expected, now looks to pause. The Fed made good on market expectations yesterday by cutting policy rates by 25 basis points. The Fed’s statement removed its pledge to “act as appropriate to sustain the expansion,” suggesting that rates are on hold for the foreseeable future. Fed Chair Jerome Powell echoed that sentiment in his press conference- saying that the Fed would need to see a “material deterioration” to their economic outlook before cutting rates again. Fed funds futures are currently pricing one cut throughout all of 2020. Future rate hikes seem even less likely as the Fed’s preferred measures of inflation remain stubbornly below the central bank’s 2% target.

 

 

Rates and stocks both lower to start the day amid fresh trade uncertainty. Treasury yields and swap rates are 3-4 basis points lower across the curve as new questions around the viability of a long-term trade deal between the US and China have emerged. The change in sentiment comes as Chinese officials said they will not move on their key sticking points unless the US rolls back tariffs on Chinese goods- adding that they are concerned about the decision making of President Trump.

 

 

Friday payrolls. Tomorrow’s jobs report will round out an incredibly busy week. Current expectations are for nonfarm payrolls to increase by 85,000 (down sharply from the prior months increase of 136,000). If the ADP’s measure of private payrolls is any indication, we could see a strong employment print- one that will further support Fed Chair Powell’s characterization of a solid labor market.