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25 Jul 2019

International Economy

Fed meeting on July 30-31, 2019 is expected to cut interest rate to sustain the US economic recovery (Business Brief No.3811)


         KResearch expects the US Federal Reserve to cut the interest rates by 0.25 percent percentage point from 2.25-2.50 percent to 2.00-2.25 percent. Moreover, the Fed is likely to announce to end the balance sheet reduction before the initial schedule to ensure the continuity of the US economic expansion during the Federal Open Market Committee meeting on July 30-31, 2019. The Fed's policy rate shift signals its flexibility in implementing monetary policy in response to economic environment rather than an attempt to address the slowing business activities.

          ​Looking ahead, the Fed will closely monitor the US economic performance, risks to the future recovery and results from the interest rate policy implementation for evaluation before deciding to hint at the fed funds rate movement in the future. The Fed is likely to maintain its outlook of the US economy that it will expand as projected. Still, the issues related to the US trade war with China and the global economic performance especially risks associated with Britain's exit from the European Union (Brexit) on the economies of the Eurozone and Britain, which are major trading partners of the US, will influence the Fed's monetary policy in the future. The trade dispute between the US and China has deepened and tensions have extended beyond trade. Therefore, Washington and Beijing are unlikely to come to agreement anytime soon. The Trump administration may also raise additional tariffs on the Chinese imports in the next round of trade retaliation, pressuring investments in related industries and possibly lowering profits of the US business sector. Consequently, the US consumption may be weakened. If the trade war escalates further and the global economic outlook worsens, this may prompt the Fed to consider easing monetary policy further.

International Economy