As expected the Federal Reserve cut interest rates 0.25% to a range of 1.5% - 1.75%. The Fed cited “… the implications of global developments for the economic outlook, as well as muted inflation pressures…” as reasons for the rate cut. A change in wording regarding what the Fed would do concerning the future path of rate hikes from “act” to “assess(es)”, and Powell’s statement that Fed members “see the current stance of monetary policy as likely to remain appropriate” suggest that future hikes may be on hold. However, we continue to think another cut is possible in December and two others at the beginning of 2020 as the US economy will continue to weaken. Q3 GDP was slightly stronger than expected at +1.9% q/q annualized, led by solid consumption of +2.9%, although that was down from last quarter’s +4.6%. Trade uncertainty weighed on business investment, which fell -3.0%, the second consecutive decline, but residential investment rose for the first time in seven quarters, gaining +5.1%. We maintain our forecast of +2.4% for 2019 and +1.6% for 2020.
