Research Brief: Federal Reserve – July 2019

Fed has increasingly accommodative stance as trade battles weigh on economy. At its latest meeting, the Federal Reserve showed a greater willingness to ease policy rates in the near term. Chairman Powell pointed to weaker inflation and economic data, together with uncertainty amid trade tensions between the United States and China. The Fed reinforced its willingness to let inflation rise above the 2 percent level going forward, a no-table shift in its historical policy framework designed to increase future flexibility. Wall Street has begun to price in rate cuts as early as the July meeting, reflecting a rapid shift toward more dovish policy. Rate cuts during an ongoing expansion would echo similar steps taken during the mid-1990s, when Fed officials responded to softening data by trimming rates three times. The recent trade detente reached between Presidents Trump and Xi at the G20 meetings in Tokyo has eased market concerns in the near term, yet ongoing uncertainty and the potential for re-escalation of tensions remain key considerations of Fed officials moving forward.

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