US: Fed to cut rates probably in April – Danske Bank

Strategists at Danske Bank analyze the situation of the American economy and which steps can take Fed’s Chair Powell in the coming months. Their view is that the Fed will cut rates in the first half of this year.  

Key quotes

"In our view, Fed chair Powell has positioned himself as one of the more dovish members of the centrist camp, suggesting that a rate hike is not in the cards anytime soon and that risks are skewed towards more easing."

"It is fair that investors continue to price in cuts. Investors have priced in around 1.4 cuts this year and nearly a 50% probability of a rate cut by June. At the beginning of the year less than one cut was priced in."

"We have not changed our macro outlook for the US significantly on the back of the virus outbreak. We believe private consumption will remain the main growth driver but that renewed uncertainty is likely to postpone a potential rebound in investments by a few months, depending on how long the uncertainty drags out." 

"For now, we stick to our view that the Fed will cut rates again during the first half of 2020, probably in April, although it is not a high conviction call at this point. We disagree with the Fed when it says that monetary policy is accommodative, as the real Fed funds rate is at the same levels as real yields."