businesstdelion

TDSECURITIESDATAFLASHU.
S.
:FOMCCutsFedFundsRateby50bps,WithDovishBiasTheFedcutsinterestratesby50bpsto1.
00%.
Theaccompanyingstatementappearstopointtoadownwardbiasforfuturemonetarypolicy.
Thetoneofthecommuniquéwasdecidedlydovish.
TheU.
S.
FOMC(unanimously)decidedtoreducethefedfundsrateby50bpsto1.
00%,comingontheheelsofthecoordinated50bpscutearlierthismonth.
Thetoneofthereportwasverydovish,andstuckcloselytothescriptsetoutjustafewweeksagoinitsintermeetingdecision.
Indeed,whiletheFedbelievesthatthisdecision,alongwithitspastactionswill"promoteareturntomoderateeconomicgrowth",itdoesgoontosaythat"thedownsideriskstogrowthremain",whichwebelieveisasignalfromthemthattheymaybepreparedtotakefurtheraction.
Theeconomicassessmentwasparticularlydovish.
TheFednotedthatthepaceofeconomicactivity"appearstohaveslowedmarkedly",onaccountofthedeclineinconsumerspending.
Italsonotedthatbusinessspendingandindustrialproductionhavealsoweakenedinrecentmonths.
Moreover,theFedstatedthatitexpects"slowingeconomicactivityinmanyforeigneconomiesisdampingtheprospectforU.
S.
exports"–whichhasbeenakeysourceofstrengthfortheU.
S.
economy.
Ontheinflationfront,thestatementomittedanymentionoftheupsideriskstoinflation,notingthat"theCommitteeexpectsinflationtomoderateinthecomingquarterstolevelsconsistentwithpricestability.
"Indoingso,theFedappearstohaveshifteditsfocusdecidedlyfromanyconcernsaboutinflationtotheoutlookforgrowth,whichisasignificantdeparturefromitspreviousstance.
Intermsoftheongoingfinancialcrisisanditsimpactoftherealeconomy,theFednotedthat"theintensificationoffinancialmarketturmoilislikelytoexertadditionalrestraintonspending,partlybyfurtherreducingtheabilityofhouseholdsandbusinessestoobtaincredit",whichisfairlysimilarinlanguageofthepreviousstatement.
TheFed'sdecisiontoprovidefurthermonetarystimulustotheU.
S.
economyisclearlypartofitsaggressiveresponsetotheongoingeconomicdeteriorationandfinancialsectorcrisis,andisindicativeofitssteadfastdeterminationtogetaheadofthecurve(oratleasttocatchup)inbothregards.
Indeed,witheconomicactivityappearingtohavegroundtoahaltinthesecondhalfoftheyear,andthefinancialcrisiscontinuingtostifletheeffectivenessofthesubstantialeasinginthepastyear,theFedappearshavesignalleditswillingnesstodomoreinthefuture.
Thisisnotacertaintygiventhepracticalchallengesthatexistwhenacentralbankrategoesbelow1.
00%,butitremainsariskworthfocusingon.
MillanL.
B.
MulraineEconomicsStrategistTDSecurities1(416)3082911millan.
mulraine@tdsecurities.
comhttps://www.
tdsresearch.
com/currency-ratesDisclaimer:Thisreporthasbeenpreparedsolelyforinformationalpurposesonlyandisnotintendedtoprovidefinancial,legal,accountingortaxadviceandshouldnotberelieduponinthatregard.
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