Fed watchers expect rate cuts this year

Bloomberg

Federal Reserve watchers said the central bank will abandon its patient policy stance and cut interest rates in coming months as President Donald Trump’s planned new tariffs on Mexican goods may drag down US economic growth.
JPMorgan Chase & Co. chief US economist Michael Feroli now projects quarter-point rate reductions in September and December, while Barclays Plc’s Michael Gapen sees a half-point cut in September followed by another quarter-point by year-end. NatWest Markets economists and former Fed Governor Laurence Meyer also said the central bank will act to bolster an economy that is being buffeted by trade tensions and other headwinds.
“Even if a deal is quickly reached with Mexico, which seems plausible, the damage to business confidence could be lasting, with consequences that might still require a Fed response,’’ Feroli said in a note.
President Donald Trump said that the US would put 5 percent duties on all Mexican imports on June 10, rising in increments to 25 percent in October, unless Mexico halts “illegal migrants” heading to the US Stocks fell on the news and investors increased bets that the central bank would ease policy this year. Fed Vice Chairman Richard Clarida said, before Trump’s announcement, that the central bank would be prepared to ease policy if it saw mounting risks to the US economic expansion.
Feroli said the Fed “may well need to cut by much more than 50 basis points’’ if tariffs on Mexico are raised to 25 percent. Gapen wrote that “earlier action is not out of the question, in our view, if financial conditions deteriorate rapidly.”