19 Sep 2019

7-3 split

Yesterday evening, the US the Federal Open Market Committee (FOMC) voted to lower the Federal funds target range by 25 basis points to 1.75-2.00%, in line with consensus and Investec expectations. 

Seven members of the Committee voted to cut by the 0.25% with three dissenters; Kansas City Fed President Esther George and Boston Fed President Eric Rosengren both voted to keep the rate unchanged, whereas St Louis Fed President James Bullard favoured a 50 basis point reduction. 

Language of the policy statement was largely unaltered from its last meeting, with the FOMC pledging to “act as appropriate to sustain the expansion” while noting that business investment and exports had weakened. It also released an updated ‘dot plot’, which showed that the median view among the FOMC was for rates to remain steady through the end of 2020. Overall, we see little to shift our call for a further two 25 basis point cuts in the Federal funds target range in October and Q1. 

UK inflation hits a soft patch

The targeted UK inflation measure (CPI) undershot expectations coming in at 1.7%. Consensus and our own forecast for CPI had been for a more moderate fall to 1.9% from 2.1%. The largest downward contribution to the change in the 12-month inflation rate came from the recreation and culture category (-0.15ppts), led by computer games which are typically volatile and do push the CPI rate around month to month. Stripping this out, and considering some correction to this is likely next month, the underlying fall in inflation looks more moderate. Computer games aside, we expect to see inflation pressures remaining muted over the months ahead, taking away any near-term talk of policy tightening from the Bank of England and, if anything, making a near-term loosening in the policy stance more likely.


Economic Releases

Nothing to note.