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By George Goncalves 29-07-2020
In: hive-exclusives | Monetary Policy & Inflation US

July FOMC Preview: The Setup For Dovish September Policy Moves?

(4 min read)
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This past year feels like a blur for all the obvious reasons. But before the all-out blitzkrieg easing campaign that the Fed launched post March 2020 to help combat the fallout from the COVID-induced disruptions, it is worth mentioning that this time last year, at the July FOMC meeting, the Fed actually embarked on its first of the many so-called “insurance rate cuts”.

Those following my work for the past twelve months will recall that I was sceptical that once the Fed starts easing it would only tweak rates a few times like it did in the 1990s mid-cycle adjustment. For starters, the US economy was late cycle to begin with, and in 2019 we were still dealing with the QT aftershocks which led up to the repo crisis. The COVID shock was just the catalyst that exposed many of the fragilities (bond market functioning liquidity flaws, over-levered corporates, CREs, etc.) in the financial system. This is not completely shocking; but when faced with all these market challenges and now economic hardships post COVID, the Fed has become even more hypersensitive to the evolution of financial conditions and has performed easing operations that once took years in a matter of weeks. They have also resorted to sounding uber dovish, too.


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