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The Federal Open Market Committee (FOMC) is expected to cut rates by 25bps this week. It is also expected to maintain an easing bias and for many FOMC members to project three rate cuts for 2019, according to the latest research report from ANZ Research.
The dot plot should drop, but the distribution around the median is likely to widen as the Committee is divided on the need for easing. Fed Chair Jerome Powell may face a challenge articulating the policy outlook given the division of views, however he is expected to emphasise the Fed will do what it can to sustain the expansion.
At his recent Jackson Hole speech, Chair Powell indicated that the FOMC is facing considerable challenges setting policy in an environment of heightened trade uncertainty. Specifically, Powell said that fitting trade policy uncertainty into this framework was a new challenge.
Given the lack of a playbook to deal with trade policy uncertainty it is no surprise that there is currently a diversity of views within the Committee.
Further, the FOMC’s policy statement is anticipated to be little changed, both with respect to the characterisation of the economy or policy guidance. The Fed is likely to characterise the economy as rising at a moderate rate supported by household spending, the report added.
Although non-farm payrolls eased in August, other employment indicators remain solid and thus the FOMC is likely to continue to view the labour market as remaining strong. Little change is expected on the description of inflation and inflation expectations.
"On the policy front, other than announcing the 25bps point cut, we expect the FOMC to continue to hold its easing bias by retaining its line that it “will continue to closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion”. This leaves the door open to further rate cuts if they are needed. We expect regional Federal Reserve Presidents George and Rosengren to dissent against the 25bps cut, preferring to leave policy unchanged, as they did in July," ANZ Research further commented in the report.
