Short Insight – Why the Fed will keep cutting

On the face of it, the US economy still looks strong – unemployment is historically low, and growth remains above trend. However, under the hood, things are not so rosy. The manufacturing sector – which tends to drive the business cycle – is weak and is likely to weaken further. This is feeding through to slower jobs growth, dampening consumer confidence. This will ultimately drive a broader slowdown (but not a recession). Given the looming slowdown and in the absence of inflationary pressure, we now expect the Fed to cut 25bp at all three remaining FOMC meetings this year. Previously, we expected two further cuts by Q1 2020.