- 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.