Fed: 25bps cut is all but priced in – Deutsche Bank

Deutsche Bank analysts suggest that for the Fed, a 25bp cut is all but priced in but the bigger focal point for markets is what message the Fed wants to send. 

Key Quotes

“With incoming data since the September FOMC meeting generally underperforming expectations, revisions to the statement language about recent developments should skew in a slightly dovish direction. In terms of forward guidance, the statement should retain the Committee's commitment to "act as appropriate to sustain the expansion". Ultimately the team believe that it is too early for the FOMC to communicate the end of the cutting cycle given where risks lie, the recent data and the leading indicators signaling a further slowdown ahead.”

“One point they do make though is that the Chair could implicitly raise the bar for further cuts as they await the outcome of a few event risks related to trade policy and take time to assess incoming data. In effect, the threshold for cutting could change from not seeing an improvement in the data – which is how we interpreted the guidance from the past several meetings – to needing to see some further deterioration.”

“This could be communicated by emphasising the magnitude of easing to date and the long lags in monetary policy or by providing a more positive assessment of the distribution of risks around the outlook, among other possibilities. We’ll get the decision at 6pm GMT followed shortly by Powell’s press conference shortly after.”