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Triangulation, Federal Reserve style

The Federal Open Market Committee delivered an expected 25 basis points easing that dropped the current Fed funds range down to 1.75 to 2 per cent. Two FOMC members dissented, while James Bullard, president of the St Louis Fed, sought a 50bp easing.

The message for markets was hawkish at the margin via the “dot-plot” as the median expectation of the 17 member FOMC for policy over the rest of 2019 and for 2020 is one of no further easing, in effect, stuck at Wednesday’s 1.875 per cent midpoint.

Seven FOMC members saw a year-end level of 1.625 per cent for the funds rate (the midpoint of a 1.5 to 1.75 per cent range), while five others see no need for a further reduction. The remaining five officials of the 17-member FOMC expect a funds rate at 2.125 per cent when 2019 ends.

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Here via TD Securities is a snapshot of the median dots from Wednesday’s meeting and the previous update from June.

Very much a triangulated FOMC, but one seen easing later this year should the economy weaken. That perhaps explains the rebound for Wall Street from its mid-afternoon low. During his press conference, Mr Powell said more extensive cuts may be needed in the event that macro activity slides. That heightens the importance of how US/China trade tension is resolved along with Brexit, and perhaps the most important area of the domestic economy: will the strength of US consumers hold.


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