The Federal Reserve lowered the target range for the federal funds rate to 1.75-2 percent on a 7-3 vote during its September meeting. It was the second rate cut this year amid muted inflation pressures and concerns about the economic outlook. FOMC mentioned in the last statement that several elevated uncertainties such as the global growth slowdown, unsolved Brexit and trade tensions weighed on the economy and posed ongoing risks. Although the FOMC stated that economic activity remains sustained expansion, labor market conditions stay strong, and inflation is near its symmetric 2% objective, FOMC will continue to monitor the incoming indicators for the economic outlook and will act as appropriate to sustain the growth.
At present, the market are betting that the Fed will conduct the third 0.25% rate reduction this year. The current consensus for federal funds rate range is 1.5%-1.75%.
Fed Interest Rate (%)
U.S. Interest Rate Announcement History
Date (GMT) Previous Consensus Actual
30 Oct 2019 2% 1.75%
18 Sep 2019 2.25% 2% 2%
31 Jul 2019 2.5% 2.25% 2.25%
19 Jun 2019 2.5% 2.5% 2.5%
01 May 2019 2.5% 2.5% 2.5%
20 Mar 2019 2.5% 2.5% 2.5%
30 Jan 2019 2.5% 2.5% 2.5%
19 Dec 2018 2.25% 2.5% 2.5%
08 Nov 2018 2.25% 2.25% 2.25%
26 Sep 2018 2% 2.25% 2.25%
Opportunities can be found in the statement
“Consumer price inflation, as measured by the 12-month change in the price index for personal consumption expenditures, moved down from a little above the FOMC's objective of 2 percent in the middle of last year to a rate of 1.5 percent in May. The 12-month measure of inflation that excludes food and energy items (so-called core inflation), which historically has been a better indicator than the overall figure of where inflation will be in the future, was 1.6 percent in May-down from a rate of 2 percent from a year ago. However, these year-over-year declines mainly reflect soft readings in the monthly price data earlier this year, which appear to reflect transitory influences. Survey-based measures of longer-run inflation expectations are little changed, while market-based measures of inflation compensation have declined recently to levels close to or below the low levels seen late last year.” Referring to Fed’s Monetary Policy Report - July 2019.
The US annual inflation rate was unchanged at 1.7% in September, which is slightly below market expectation of 1.8%, in that a rise in food inflation was offset by a further decline in energy prices. But US CPI increased to 256.36 Index Points in September from 256.30 Index Points in August, showing a moderate pick up in inflation level after Fed’s consecutive two rate cut decisions. In determining the future adjustments to the target range for the fund rate, the FOMC will assess realized and expected economic conditions relative to its symmetric 2% inflation objective, including indicators of inflation pressures and inflation expectations.
U.S. Inflation Rate (%)
“The labor market has continued to strengthen. Over the first five months of 2019, payrolls increased an average of 165,000 per month. This rate is down from the average pace of 223,000 in 2018, but it is faster than what is needed to provide jobs for new entrants into the labor force. The unemployment rate moved down from 3.9 percent in December to 3.6 percent in May; meanwhile, wage gains have remained moderate.” Referring to Fed’s Monetary Policy Report (July 2019).
The US unemployment rate decreased to 3.5% in September from 3.7% in the previous month, which performs better than market expectations of 3.7%. Even though FOMC indicates the labour market remains strong, the non-farm payrolls in the US grew by 136 thousand in September, following an upwardly revised 168 thousand rise in August. FOMC is still watching on the labour market conditions to the future fund rate adjustments.
U.S. Unemployment Rate (%)
“In the first quarter, real gross domestic product (GDP) is reported to have increased at an annual rate of 3.1 percent, bolstered by a sizable contribution from net exports and business inventories. By contrast, consumer spending in the first quarter was lackluster but appears to have picked up in recent months. Meanwhile, following robust gains last year, business fixed investment slowed in the first quarter, and indicators suggest that investment decelerated further in the spring. All told, incoming data for the second quarter suggest a moderation in GDP growth-despite a pickup in consumption-as the contributions from net exports and inventories reverse and the impetus from business investment wanes further.” Referring to Fed’s Monetary Policy Report - July 2019.
The GDP in the United States expanded 2% in the 3rd quarter of 2019 over the same quarter of the previous year. Even with a strong job market, inflation close to the objective and a bulk growth of GDP, FOMC is still being patient as these outcomes may be appropriate to support future federal funds rate adjustments to the target range.
U.S. GDP Annual Growth Rate (%)
The Dollar Index (DXY) found its support at 96.70, which sustained its upward trend. However, the price formed a huge waterfall since reached 99.18 at the beginning for October. The bearish momentum still exist at present. Within this week, the Dollar Index is retracing from 96.70 support level. Focus on the support level for further movement. If the price break through 96.70 support level, the greenback will turn its direction to South in the future run.
USD Index Daily Chart