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WSJ: Chance of a rate cut at next FOMC meeting is 25% as trade worries mount

"Darker economic outlook" may force policymakers to take accommodative stance

The chance the Federal Reserve will cut its benchmark rate in two weeks at its next meeting in Washington, D.C., is mounting as trade tensions threaten the economy, according to a Wall Street Journal story

Traders in futures markets are putting about a 25% chance of a rate cut at the June 18-19 meeting and a 75% chance of a cut at the meeting after that, on July 30-31, according to data from CME Group cited by the Journal story.

“One month ago, Fed Chairman Jerome Powell played down speculation of a rate cut this summer,” WSJ reporter Nick Timiraos wrote. “Now officials face a darker economic outlook, making a rate cut possible — if not at their meeting on June 18-19, then possibly in July or later.”

Federal Reserve Bank of St. Louis President James Bullard said in a speech Monday to the Union League Club of Chicago that a lowering of the central bank’s short-term target rate “may be warranted soon.”

The Fed “faces an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty,” Bullard said. “Global trade disputes may be more protracted and more difficult to resolve than previously envisioned.”

His remarks were the first time a Fed official publicly suggested the need for a rate cut since the central bank put rates on hold in January. Bullard is currently a voting member of the rate-setting Federal Open Market Committee

The following day, Fed Chairman Jerome Powell seemed to soften his stance against a cut, and put the blame firmly on trade-war worries. 

“We do not know how or when these trade issues will be resolved,” Powell said on Tuesday. “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, will act as appropriate to sustain the expansion.”

The FOMC consists of eight permanent members, including the Fed’s Board of Governors and the president of the Federal Reserve Bank of New York, as well as four of the remaining 11 Federal Reserve bank presidents who serve one-year terms on a rotating basis.

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