WASHINGTON. Analysts from Danske Bank predicts that the Federal Reserve will cut its reference rate five times by April 2020.
As previously reported, in July, the Fed had already cut the rate by 25 basis points. However, a statement from Fed Chairman Jerome Powell indicated the cut was only a temporary adjustment. That caused the stock market to plummet because investors hoped there would be further interest rate cuts in the near future.
Quoting CNBC, Powell revealed three reasons for the reference rate cut: high trade uncertainty, slowing global growth, and the inflation rate that remained below 2%. Nevertheless, since the meeting, the tension of the US-China trade war has continued to increase and market sentiment shows a high turmoil.
Disregarding Powell's statement, analyst team from Danske Bank led by Mikael Olai Milhoj believes that the Fed will take further steps to cut reference rates by 25 basis points in each of the next five meetings.
"Economic indicators outside the US look weak. The data on fixed asset investment, industrial production and retail sales in China are lower than predicted. Then the second-quarter German GDP contracted and the ZEW survey was very weak," explained Danske Bank in its published research results quoted by CNBCindonesia.com on Tuesday (20/8).
Analysts also anticipate that despite its aggressive appeareance, the Fed will not commit to further policy easing, and will maintain the current ad hoc approach. Analysts assess, sudden large cuts in reference rates by 50 basis points appear excessive, because historically, larger cuts and cuts between meetings were made during a recession and when unemployment rose. (AM/AR)