- The tone of Fed Chairman Powell’s remarks in Zurich was similar to that of his speech in Jackson Hole. Powell repeated the statement that the Fed will ‘act as appropriate to sustain the expansion,’ which indicates that he is leaning toward a September rate cut.
- Earlier today, the Employment Report for August showed that the weakness in the manufacturing sector and business investment has spread to employment growth. This strengthens the case for an insurance cut in September, although Powell said that the labor market remained in quite a strong position.
- In our view the feedback loop between trade policy and monetary policy is likely to lead to another insurance cut, probably in October. Meanwhile, the inverted yield curve points to a recession in 2020 that will force the Fed to cut rates all the way to zero before the end of 2020.
Powell doesn’t change his tune
Fed Chairman Jerome Powell did not bring a prepared speech to the SNB event at the University of Zurich today, instead he took part in a moderated Q&A with SNB President Thomas Jordan on the economic outlook and monetary policy. Powell said that the US economy is still in a good place and the most likely outlook remains favorable. However, there are the significant risks to the outlook: global economic growth, uncertainty about trade policy and persistently low inflation. He said that ‘As we move forward, we’re going to continue to watch all of these factors, and all the geopolitical things that are happening, and we’re going to continue to act as appropriate to sustain this expansion.’
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