FOMC Recap: Hawkish Cut Delivered, Punters Ponder Powell’s Pontificating
Matthew Weller | Oct 30, 2019 03:03PM ET
As we noted in Tuesday’s FOMC Preview report, the Fed has an unblemished record of meeting market expectations over the last decade, so Wednesday’s decision to cut interest rates by 25bps to the 1.50-1.75% range was hardly a surprise for traders.
Going a step further, most traders expected a so-called “hawkish cut,” where the central bank seeks to tamp down expectations for future interest-rate reductions. The statement supported this outlook in two primary ways:
h3 1. Removed Phrase Stating That The Committee “…Will Act To Sustain The Expansion…”/h3The only substantive change the committee’s monetary policy statement was to remove the phrase it has used to hint at interest-rate cuts in the past. With this tweak, it’s clear that the Fed views its “mid-cycle adjustment” as complete and that any further interest-rate cuts will be in reaction to slowing economic data.
h3 2. Bullard’s Dovish Dissent Disappears/h3After dissenting in favor of an immediate 50bps cut to the Fed Funds rate last month, James Bullard joined the majority in voting for just a 25bps cut this time around. Meanwhile, the hawkish voters (Esther George and Eric Rosengren) still preferred rates to remain steady, meaning that in aggregate, the central bank may be leaning toward leaving interest rates unchanged in December as it currently stands.
Source: FOREX.com
In the immediate reaction to the Fed’s decision, traders trimmed bets on an interest-rate cut next month, with the CME’s FedWatch tool now showing the market-implied odds of such a move dropping from 27% to 22% ahead of Fed Chairman Powell’s press conference. In terms of market moves, we saw the U.S. dollar tack on about 10 pips against its major rivals and yields on U.S. treasury bonds tick up 1-2bps.
In his prepared remarks, Chairman Powell noted that monetary policy is “in a good place now,” supporting the notion that any further cuts will require deteriorating data.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.