FAST FIVE: Very Divided FOMC Cuts Rates As Expected, Fails To Address Liquidity Crisis, Sees No More 2019 Cuts
10 say hold or raise No mention of POMO or permanent repo ops: watch G/C explode overnight * * * As we detailed earlier, things have not gone exactly according to plan since The Fed cut rates for the first time in a decade: But today is a big day for Jay Powell as he has to somehow explain why he is cutting rates in the face of: Surging inflation Source: Bloomberg Dramatically positive macro surprises Source: Bloomberg Unemployment near record lows Source: Bloomberg Stocks near record highs Source: Bloomberg Bond yields near record lows Source: Bloomberg Dollar near record highs Source: Bloomberg Of course, there is the fact that policy uncertainty has never been higher.
Source: Bloomberg And The Fed just suffered the biggest short-term liquidity crisis since 2007.
Source: Bloomberg The market is completely priced for at least a 25bps cut today.
The dot plot will shift lower, though we'd caution against over-interpreting this forward guidance due to the divergence between modal member forecasts and monetary policy implemented with a risk-management focus.
10 say hold or raise 3 Dissents GEORGE, ROSENGREN DISSENT FOR NO CUT BULLARD SEEKS 50 BPS Bloomberg's Key Takeaways from the Fed decision: No surprise on main action, as FOMC cuts benchmark rate 25 basis points for a second straight meeting — to 1.75%-2% target range The dot plot of rate forecasts is somewhat hawkish, showing a split over the need for more easing, not just in 2019 but in coming years: Seven officials see an end-2019 funds rate of 1.625%, with five at 1.875% and five at 2.125%; none see the rate going below 1.625% through 2022 Esther George and Eric Rosengren again dissent in favor of no cut, while James Bullard seeks a half-point cut; it's the first decision with three dissents since 2016, under Janet Yellen The Fed also lowered the interest on excess reserves rate and the overnight repurchase rate by 30 basis points, with the central bank seeking to regain control of the benchmark as money-market strains persist The FOMC reiterates that it will “act as appropriate to sustain the expansion''; the statement contains minimal changes, mainly to note household spending gains have been “strong” while business fixed investment and exports have “weakened”; the mention of exports is new and there's a more explicit nod to trade tensions weighing on growth Fed officials' economic forecasts were largely unchanged from the prior round in June; there's a slight upgrade in GDP growth expectations, but policy makers still see the expansion slowing and nowhere near Trump's 3% goal And the DOT-plot adjusted.