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Sept. 18, 2019, 8:22 a.m. EDT

3 things to watch as Fed meets on interest rates

With quarter-point rate-cut widely expected, Fed watchers hunt for clues about what comes next

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By Greg Robb, MarketWatch


Bloomberg Enlarge Image
Fed Chairman Jerome Powell said earlier this month that the central bank doesn’t expect a recession.

After six weeks of market swings, the Federal Reserve is set to meet in a period of relative calm, at least if you don’t count a president breathing fire.

Stocks and bond yields have been rising. The 10-year Treasury yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%  has seen its sharpest rise since 2013.

The Fed is expected to cut its benchmark interest rate by a quarter percentage point to a range of 1.75%-2% when it concludes a two-day meeting on Wednesday. That will be the second rate cut of the summer.

Talk of an emergency half a percentage point cut has died down given signs U.S. economic growth is stable and inflation picking up. That’s not the case with the president, however. Citing, among other things, what he called “the Oil hit,” Trump tweeted as recently as Monday: “Big Interest Rate Drop, Stimulus!”

The market has priced in another quarter-point cut at the Fed’s December meeting, according the the CME Group’s FedWatch tool.

The quarter-point cut will be a “yawner.” What will be more interesting is if the Fed gives clues about what comes next, said Avery Shenfeld, chief economist at CIBC Capital Markets.

Here’s a look at what economists and investors will be watching for.

Will there be a clear signal of another rate cut this year?

Economists are divided on this. The best place for a signal of another cut would be in the “dot plot” where Fed officials give their own individual estimates for where the benchmark rate should be.

But for the median dot to show another rate cut, many Fed officials will have to dramatically lower their own rate projections. That’s a big ask as eight Fed officials didn’t even project one rate cut in June.

Scott Anderson, chief economist at Bank of the West, said he expects the dot plot to project another quarter point cut in 2019.

If the dot plot doesn’t project more easing, the task might fall to Powell to leave the door open for another cut when he talks to reporters.

Press conference

In general, Powell is expected to stick to his July message that the Fed is on a “moderate” easing path, said David Wilcox, a former top Fed staffer and now a senior fellow at the Peterson Institute for International Economics.

Powell used the phrase “mid-course correction” in July but might scrap it. Whatever words he chooses, the Fed chairman is trying to communicate the economy isn’t in the throes of a recession where the central bank has to use “every piece of artillery in its arsenal,” Wilcox said.

How many dissenters will there be?

The good economic data and the rising bond yields may make only a small majority in favor of a rate hike. Four regional Fed presidents objected to the cut in rates in July. Two presidents — Boston Fed President Eric Rosengren and Kansas City Fed President Esther George — were voters and dissented.

They will do so again in September, said Diane Swonk, chief economist at Grant Thornton. Economists don’t think there will be a dissent in favor of a half-point cut, although St. Louis Fed President James Bullard had urged the committee to cut aggressively.

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Greg Robb is a senior reporter for MarketWatch in Washington. Follow him on Twitter @grobb2000.

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