FOMC Preview

July 31, 2019

In the six weeks since the last scheduled FOMC meeting, the dollar has edged up 0.2% against the yen and 0.8% versus the euro. It’s been a period in which Fed officials have prepared markets rhetorically to expect an interest rate cut today, so it’s somewhat surprising that the 10-year Treasury yield is now only five basis points lower than when the last meeting’s decision was announced and no different from the level at which it closed that day. Over these six weeks, the biggest market reactions to a likely easing in end-July have been a 9% increase in the price of oil and a 3% advance in the DOW.

At one point in these six weeks, the possibility that the FOMC might even cut the interest rate by 50 basis points gained some favor, but such a move is now considered less likely than a cut of 25 basis points. A big area of suspense involves forward guidance. Will today’s move be framed as the first of several or one that only will be augmented down the road if forthcoming data warrant more easing?

Several other central banks have cut rates recently, and both the ECB and BOJ have adjusted their forward guidance to suggest easing in the future. If most central banks ease in tandem and if the Fed is seen to be doing the White House’s bidding, the Treasury yield curve would be apt to steepen, but the dollar might weaken not so much because of interest rates — differentials would not change much — as in reaction the Fed’s eroded credibility.

EUR/$ $/JPY 10Y, % DJIA Oil, $
06/30/04 1.2173 109.44 4.63 10396 37.95
06/30/05 1.2090 110.89 3.96 10370 57.00
06/29/06 1.2527 116.07 5.20 11077 73.41
06/28/07 1.3452 123.17 5.10 13456 69.82
08/07/07 1.3749 118.55 4.73 13510 72.27
09/18/07 1.3888 115.75 4.51 13475 81.42
10/31/07 1.4458 115.28 4.42 13873 93.59
12/11/07 1.4682 111.49 4.11 13645 89.78
01/30/08 1.4792 107.31 3.70 12454 91.70
03/18/08 1.5786 98.73 3.41 12257 107.53
04/30/08 1.5562 104.58 3.83 12953 111.54
06/25/08 1.5568 108.37 4.18 11837 133.62
08/05/08 1.5445 108.42 3.97 11484 119.82
09/16/08 1.4144 105.16 3.36 10936 91.18
10/08/08 1.3625 99.87 3.50 9447 87.02
10/29/08 1.2933 97.15 3.81 9145 67.38
12/16/08 1.3790 90.14 2.52 8687 44.14
01/28/09 1.3253 90.01 2.61 8356 42.92
03/18/09 1.3115 98.13 2.94 7340 47.73
04/29/09 1.3331 97.06 3.02 8194 51.05
06/24/09 1.3984 95.43 3.59 8373 68.76
08/12/09 1.4221 96.17 3.71 9366 70.64
09/23/09 1.4779 91.50 3.50 9859 69.13
11/04/09 1.4884 90.75 3.51 9896 80.66
12/16/09 1.4542 89.78 3.56 10478 73.14
01/27/10 1.4045 89.49 3.61 10148 73.31
03/16/10 1.3756 90.64 3.67 10645 81.45
04/28/10 1.3157 94.10 3.75 11043 82.57
06/23/10 1.2284 90.12 3.13 10307 76.50
08/10/10 1.3107 85.85 2.81 10605 79.94
09/21/10 1.3132 85.21 2.66 10747 73.05
11/03/10 1.4059 81.35 2.53 11174 84.59
12/14/10 1.3423 83.37 3.38 11497 88.47
01/26/11 1.3658 82.55 3.41 12001 87.36
03/15/11 1.3969 81.04 3.29 11815 98.09
04/27/11 1.4665 82.63 3.36 12612 112.48
06/22/11 1.4392 80.12 2.97 12175 94.87
08/09/11 1.4234 77.09 2.36 10993 81.76
09/21/11 1.3778 76.34 1.93 11377 86.74
11/02/11 1.3724 78.11 2.03 11805 92.77
12/13/11 1.3067 77.92 1.98 12130 100.20
01/25/12 1.3027 77.96 1.97 12670 98.85
03/13/12 1.3096 82.76 2.08 13044 106.34
04/25/12 1.3226 81.37 1.97 13096 104.13
06/20/12 1.2693 79.28 1.66 12837 83.63
08/01/12 1.2300 78.10 1.49 13028 88.98
09/13/12 1.2895 77.43 1.72 13342 97.60
10/24/12 1.2948 79.75 1.77 13115 85.72
12/12/12 1.3082 83.24 1.70 13325 87.13
01/30/13 1.3584 91.16 2.02 13949 97.63
03/20/13 1.2948 95.65 1.94 14497 92.82
05/01/13 1.3195 97.48 1.62 14740 90.47
06/19/13 1.3364 95.76 2.23 15304 98.38
07/31/13 1.3301 97.92 2.67 15565 105.63
09/18/13 1.3363 98.28 2.76 15606 107.01
10/30/13 1.3764 98.18 2.48 15660 97.42
12/18/13 1.3696 103.81 2.89 16198 98.06
01/29/14 1.3651 102.13 2.73 15719 97.23
03/19/14 1.3918 101.75 2.71 16335 99.96
04/30/14 1.3868 102.11 2.66 16553 99.52
06/18/14 1.3584 101.93 2.61 16892 106.12
07/30/14 1.3372 102.84 2.51 16878 101.45
08/17/14 1.2961 107.60 2.57 17151 94.05
10/29/14 1.2677 108.40 2.33 16956 82.51
12/17/14 1.2409 117.58 2.11 17201 57.85
01/28/15 1.1337 117.77 1.78 17457 44.75
03/18/15 1.0637 120.98 2.05 17733 42.49
04/29/15 1.1164 118.67 2.05 18039 59.16
06/17/15 1.1255 124.22 2.39 17862 59.12
07/29/15 1.1073 123.61 2.29 17720 49.17
09/17/15

10/28/15

 1.1334

1.1081

 120.86

120.50

 2.26

2.07

 16778

17687

 47.01

45.83
12/16/15

01/27/16

03/16/16

04/27/16

06/14/16

07/27/16

09/21/16

11/02/16

12/14/16

02/01/17

03/15/17

05/03/17

06/14/17

07/25/17

09/20/17

11/01/17

12/13/17

01/31/18

03/21/18

05/02/18

06/13/18

08/01/18

09/26/18

11/08/18

12/19/18

01/30/19

03/20/19

05/01/19

06/19/19

07/31/19

 1.0956

1.0874

1.1089

1.1339

1.1205

1.0998

1.1160

1.1099

1.0641

1.0741

1.0638

1.0910

1.1149

1.1735

1.2010

1.1631

1.1815

1.2424

1.2271

1.1963

1.1788

1.1668

1.1765

1.1400

1.1420

1.1415

1.1355

1.1244

1.1217

1.1128

 

 

 121.72

118.48

113.70

111.37

106.15

105.65

100.84

103.33

115.37

113.52

114.48

112.47

111.55

111.17

111.34

113.91

112.58

109.31

106.27

109.91

110.38

111.69

112.94

113.88

112.26

109.55

111.42

111.17

108.36

108.59

 

 2.29

2.02

1.99

1.89

1.62

1.53

1.70

1.78

2.45

2.49

2.57

2.30

2.13

2.29

2.24

2.35

2.34

2.73

2.89

2.97

2.96

2.99

3.08

3.23

2.81

2.72

2.57

2.48

2.08

2.03

 17583

16002

17217

18013

17675

18461

18151

17989

19915

19890

20885

20920

21375

21711

22376

23405

24585

26259

24839

24095

25309

25310

26543

26195

23881

24841

25727

26624

26452

27218

 35.95

30.85

37.79

44.89

48.29

41.91

43.44

45.18

51.83

53.33

48.43

47.96

44.71

48.75

50.55

54.24

56.60

64.41

65.00

67.57

66.77

67.62

71.68

60.93

47.80

54.51

59.48

63.38

53.65

58.47

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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