Short, sweet FOMC preview 18.09.2019.
What do we expect from today’s meeting:
- 25bps cut done.
- No immediate QE but leaving the door open.
- IOER cut: depending on where the Fed puts it between the Fed funds posts will be our barometer for their worries. the closer they put it to the fFed funds floor, the higher it shows their sensitivity to the actual funding squeeze. Expected at 1.85% just under the new midpoint if 25bps it is but they could go down to 1.80% imo.
- Possibility of signalling a prolonged period of repo operations which would calm fears but also indicate they’re willing to sponsor US Treasury’s bond sales to finance the higher debt.
- Forward guidance signalling going back to data/trade wars/global economy dependence. Could keep the “insurance cut, mid-cycle adjustment” lines for now as data are better than feared.
The reaction in the market (and by the Orange Chief Economist..) may initially be mixed but if Powell produces a decent presser, that is navigating the inhouse differences in opinion relatively well, I’m in the camp of USD finding a bid after the event. Talking about Trump, I have the feeling Mnuchin has explained to him the Fed is sponsoring the increased debt needs with their repo ops as he’s been very quiet yesterday but will he be able to control his Twitter impulses once the Fed is done today?
Anyway here are the levels in main currencies we’ll be watching. The opinions in our room are as in every good household a little divergent on which way the USD will go but we’re aligned on the levels.