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Very Divided FOMC Cuts Rates As Expected, Fails To Address Liquidity Crisis, Sees No More 2019 Cuts

September 19, 2019 by mosesman
But today is a big day for Jay Powell as he has to somehow explain why he is cutting rates in the face of: Surging inflation
  • Very Divided FOMC Cuts Rates As Expected, Fails To Address Liquidity Crisis, Sees No More 2019 Cuts
    by Tyler Durden, https://www.zerohedge.com/
    Summary: The following critical things stand out:

    • Fed cuts both the fed funds (by 25bps to 1.75%-2.00%) and IOER (by 30bps to 1.8%) rates as expected, but does not expect any more rate cuts in 2019; the terminal rate was kept unchanged at 2.5%.
    • The Fed has never been more divided: 7-3 vote to cut; Esther L. George and Eric S. Rosengren voted to keep rates unchanged; Bullard voted for a 50bps rate cut (guaranteeing him the job over Kashkari when Trump fires Powell); 7 FOMC members predicted another cut this year, while 10 say hold or raise.
    • Hawkish: even among the dissenters, not a single FOMC member expected more than 1 rate cut any time in the future.
    • No mention of POMO or permanent repo ops: with consensus shifting rapidly to expect some major liquidity injections from the Fed namely POMO, watch overnight repo rates explode overnight as Powell failed to provide any repo support; what the Fed did do is announce it would lower the offering rate for overnight repos to 1.70%, 5bps below the bottom of the EFFR – this will hardly be sufficient for the market.
    • In summary, Powell has dismissed the significance of funding volatility and sounds hawkish to those that saw these issues as requiring the Fed to restart POMO and grow the balance sheet again.

    read more.

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