Bill Diviney, the senior economist at ABN AMRO, suggests that, despite aggressive pricing for Fed rate cuts, the FOMC statement and a dovish Chair Powell press conference appeared to more than satisfy market expectations, with bond yields moving lower and equities pushing higher.

• “Most significantly, the FOMC statement removed reference to ‘patience’ over policy, and strengthened Powell’s recent remark that the Fed will ‘act as appropriate to sustain the expansion’ by removing the qualifier ‘as always’. As well as highlighting the increased uncertainty over the outlook as the Fed’s primary concern, the statement bolstered the case for easing by pointing to ‘muted inflation pressures’. While the characterization of survey-based inflation expectations was kept as ‘little changed’, in the press conference Powell noted that they are ‘near the bottom’ of historical ranges and expressed concern over the risk of expectations becoming unanchored.
• While the ‘dots’ projections showed just one rate cut expected by the median committee member in 2020, 7 of 17 members now expect 50bp of cuts in 2019. In the press conference, Chair Powell gave this a further dovish spin by stating that even those who expected no change in policy this year nonetheless saw a stronger case for further accommodation.
• Powell also countered suggestions that a US-China trade deal alone might be enough to prevent rate cuts, by pointing to the weakness in business investment and manufacturing, and the slowdown in global growth as additional factors the committee is weighing.
• Our base case remains that the Fed will implement three 25bp cuts by Q1 2020, starting at the July meeting.”