(05 September 2019) DAILY MARKET BRIEF 2： Politized Fed will cut

The politicization of the Fed is nothing new. But has taken a worry turn under Trump policy via tweet. The divergence growth outlook leave plenty of room for interpretation. The negative scenario urging for decisive policy actions, providing impactful stimulus or wait until actual outcomes developed allowing policy makers to keep powder dry. In our view currently, the US backdrop does not warrant interest rate cuts. US GDP growth has slowed to 2.0% (tracking 1.9% in 3Q) but strong domestic demand will offset softness in expenditures. Also core PCE Inflation has picked up in recent months only slightly below FOMC 2% target. However, the greater Fed members become less independent the more they will be influenced by passions over data. X-NY Fed Bill Dudley editorial throws out policy independence and jumps into partisan politics defining US president Trump as “a threat to the U.S. and global economy.” Our view for protracting US-China trade tensions means expectations for economic weakness will persist. In this scenario, we anticipated the Fed to cut 25bp in September.