The U.S. central bank is expected to cut its benchmark interest rate further at its two-day policy meeting ending Wednesday in light of domestic economic concerns and America’s ongoing trade war with China.
Andrew Hunter, a senior economist at Capital Economics, said the Federal Reserve looks set for another 25 basis point rate cut, adding conditions have not deteriorated enough to justify a larger move.
“We do expect a further gradual slowdown in economic growth over the coming months to prompt one final 25bp cut in December,” he said.
Hunter said uncertainty remains regarding the trade war between the U.S. and China, which is starting to put additional pressure on investments and consumer confidence.
“In any case, the next rounds of tariffs on Chinese goods, coming in at the start of this month and in mid-December, will probably have a bigger impact on domestic prices and hit real incomes,” he said.
He added that high-level talks between the two sides would resume in Washington, D.C. next month under the shadow of the recent escalations and a common ground did not sound achievable before the 2020 presidential election.
James Knightley, chief international economist at ING, shared Hunter’s view, suggesting the Fed is likely to make a 25 basis point cut.
“The headwinds facing the U.S. economy have been intensifying with trade tensions, a global slowdown and a strong dollar all taking their toll on the U.S. economic outlook,” he said.
Knightley added that consumer-orientated parts of the economy are holding up, but with inflation looking non-threatening, the Fed has scope to offer support to the economy.
The U.S. central bank cut interest rates in July for the first time since the 2008 financial recession, lowering its benchmark rate by 25 basis points to a range of 2%-2.25%.