Fed Cut Or Not. Plus Cash Injection
The big event for the day ahead will, of course, be the Fed’s decision this afternoon, where a 25bp (basis points) rate cut is expected. Investors, however, will be tuned in to see the Fed’s outlook for the economy and what that will mean for the path of interest rates going forward. The risk is that the Fed does not come out as dovish as the market is expecting, which will create some volatility in the markets.
Industrial production figures released yesterday, however, showed that the sector rebounded in August to post its strongest monthly growth rate this past year, a welcome sign but perhaps short lived as most of it was driven by temporary blip in the mining sector. Coupled with headwinds such as a strong dollar and persistent trade uncertainties suggest that the outlook for the sector still remains fairly dim.
In other related Fed news, yesterday it was forced to step into the market with a cash injection to calm a recent spike in short-term rates caused by Wall Street not having enough cash in hand to meet the funding demands of the market! This is the first time the Fed has had to step in for over a decade, and the temporary nature of yesterday’s fix suggests it will do so again today. Given how the Fed has operated since the Financial Crisis and how US Treasury bond issuances are expected to continue to ramp up, calls for the Fed to re-implement quantitative easing (QE) could grow as this will be one measure it could take to increase the amount of reserves available.
