ANZ on the Federal Reserve

In summary:

  • Fed Chair Powell has signalled that FOMC tolerance of the persistent undershoot of the inflation target is wearing thin
  • The Fed thinks this undershoot is an issue as it may soon lead, if hasn't already, to an unanchoring of inflation expectations which, in turn, will harm the effectiveness of monetary policy
  • We don't see anything in coming months that would provide the Fed with enough confidence in a sustained return of inflation to target (or above) in a time frame that is acceptable. We also expect elevated trade uncertainty to linger, weighing on growth and markets
  • As such, we expect the Fed to cut rates in October 2019, and then again in Q1 2020, in order to push harder on cyclical inflation. The risk is that the Fed may need to move sooner and with more easing.

bolding mine