Fed Likely to Drop ‘Patient’ Word Next Week, Clearing Way for July Cut

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  • When Federal Reserve officials meet next week, they are expected to clear the way for a July interest rate cut by downgrading their economic forecast, tweaking the language in their statement and reducing their interest rate forecasts.
  • The Fed is expected to remove the word “patient” from its statement, signaling that it is ready to move on interest rate cuts to help the U.S. economy make it through a period of slower growth and the potential impacts of trade wars.
  • Fed funds futures are pointing to odds of about 80% for a July cut and about 20% for a June cut.

Even with President Donald Trump and the markets calling for lower interest rates, the Fed is not likely to make a move when it meets next week, though it is expected to smooth the way for a rate cut later in the summer.

The timing of a Fed rate cut, the first in more than a decade, is up for debate. But such a move has become more of a given in markets, after May’s weak jobs data and softer-than-expected consumer price inflation.

A growing number of economists and investors are expecting a midsummer rate cut, at the July 30-31 meeting. There are also those who expect the Fed to wait until September, considering more data before cutting rates. Then there are a few, such as economists at Goldman Sachs, who expect no cut at all this year.

Economists expect the Fed to tilt its message toward lower rates, with officials lowering their interest rate forecasts in the so-called “dot plot,” a chart that anonymously reflects each Fed official’s rate forecast. They are also expected to reduce their outlook for economic growth, and acknowledge weaker inflation.

“Right now, they’ll just give a very dovish message that leans toward a July rate cut,” said Joseph LaVorgna, chief economist for the Americas at Natixis. “The market is worried enough about weakness in China, inflation undershooting and the possibility that tariffs disrupt the global supply chain that it’s hard for me not to think the Fed won’t be moving faster than people thought.”

Trump again criticized the Fed and Fed Chair Jerome Powell for the Fed’s interest rate policy this week, telling ABC News the Dow would be 10,000 points higher if the Fed didn’t raise interest rates. Economists say the president’s assault on the Fed is not likely to have an impact on its interest rate decisions.

 

www.cnbc.com/2019/06/14/fed-rate-cut-could-come-sooner-than-some-expect-but-not-yet.html?__source=twitter%7Cmain

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