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FOMC Update 9-18-19: Another Interest Rate Cut and Heightened Attention to the Repo Market

Noting global weakness, muted inflation and the impact of trade policy on the economy, the Federal Open Market Committee today cut rates by 25 basis points. The move was widely expected but there was some additional news in the official announcement and press conference that followed, as you’ll hear in our FOMC update with Charles Carmody, CFA, Vice President, Co-Portfolio Manager and Sr. Fixed Income Trader, and Christian Brobst, Vice President, Associate Portfolio Manager.

Carmody and Brobst touch on:
  • Fed Chairman Jerome Powell’s studied avoidance of the term “mid-cycle” adjustment.
  • The Fed’s response to a funding crunch this week in the repo market that banks use to exchange high-quality assets (e.g., Treasuries) for cash. While the Fed announced a 30-basis point reduction in the rate it pays on bank reserves, the FOMC Update discusses possible remedies. The liquidity problem is not going away and can be expected to recur at monthly and quarter-end periods, Carmody says.
  • The Fed’s de-emphasis of the meaning of dot plots, the method it uses to convey its benchmark interest rate outlook, with the dots representing each member’s view of where interest rates should be at the end of each year. The intention is to be more data-dependent.
  • Organic balance sheet growth, which Carmody and Brobst had expected more detail on.

The markets’—bond, stock and currency—immediate reaction to the meeting outcome was muted.


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Update recorded 9/18/19.

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