US: Positive outlook for the coming months – Danske Bank

Kristoffer Kjær Lomholt, senior analyst at Danske Bank, notes that the Fed Beige Book - based on anecdotal information from the regional Feds up until 8 July - released yesterday painted a ‘positive’ outlook for the coming months ‘with expectations of continued modest growth, despite widespread concerns about the possible negative impact of trade-related uncertainty’.

Key Quotes

“This underpins the challenge for the Fed, with domestic data staying at least decent but rising downside risks and continued subdued inflation at the same time. We think the downside risk for the Fed of staying on hold is now larger than the risks associated with delivering insurance monetary policy easing.”

“With Donald Trump’s recent reminder to markets that the trade truce may quickly end, we think it is fair that markets price a slight probability of a 50bp cut at the end of this month even if we ultimately expect a 25bp cut. Markets fully price 25bp with an additional 30% probability mass of a 50bp cut.”