The Federal Reserve is expected to deliver its third straight rate cut this week, but the question remains: Will the policymakers signal a pause in the easing cycle, or leave the door open to more?
On Wednesday afternoon, at the conclusion of the Fed’s two-day meeting in Washington, all eyes will be on whether the post-meeting statement repeats its pledge to “act as appropriate to sustain the expansion” or whether the wording changes to something less committal. In addition, Chairman Jerome Powell may signal the Fed’s intention during the press conference that will follow.
“The Fed is refraining from providing forward guidance, saying rate decisions are on a meeting-by-meeting basis,” Kathleen Bostjancic, an economist at Oxford Economics in New York told Bloomberg. “However, if the Fed intends to pause its rate cuts at the December meeting, look for Chair Powell to provide some signal in his press conference.”
It’s tough to make a case for a continuation of an easing cycle when the U.S. stock markets are flirting with record highs. Still, there were several data reports this month that signaled a slowing economy, including the ISM report that put manufacturing at recession levels and a slowdown in retail sales.
There’s a tentative truce in the U.S.-China trade war that would support the economic growth – if it is nailed down. President Donald Trump has said he hopes to finalize an agreement with China’s Xi Jinping at a summit in Chile next month. Two weeks ago, China threw cold water on Trump’s announcement of a deal he called “phase one” of a trade truce, making it clear nothing is set until the documents are signed.
CME’s FedWatch tool on Monday showed a 93% chance of a 25 basis point cut at this week’s meeting. Comments from Fed policymakers prior to entering the traditional pre-meeting quiet period indicated a bias toward a third consecutive cut.
The U.S. economy probably will grow 2.4% this year and 2.1% in 2020, the International Monetary Fund said in an Oct. 15 forecast. While job growth has slowed, the unemployment rate was at a 50-year low of 3.5% in September, according to the Department of Commerce.