The Federal Reserve may be poised to unleash its bazooka to jumpstart a trade war ravaged U.S. economy this year.
The bullets inside that bazooka: aggressive rate cuts, hints one top strategist.
Barclays Chief U.S. Economist Michael Gapen — who expected 75 basis points in cuts going into Fed decision day on Wednesday — reiterated that call on Thursday. Gapen anticipates the increasingly dovish Fed will slash rates by a whopping 50 basis points at its July meeting followed by one more cut later in the year.
The Jerome Powell Fed left rates unchanged on Wednesday. But Powell struck another dovish tone in a Q&A with reporters after the decision was announced. The Fed itself cut its forward rate projections for 2020 as well. Powell mostly blamed the U.S. trade war with China and weakening economic data as reasons for the dovishness.
“It’s pretty clear the Fed is setup to ease policy at the July meeting,” Gapen said on Yahoo Finance’s The First Trade.
To be sure, Gapen’s call is one of the more aggressive on Wall Street. Most strategists Yahoo Finance has talked with are looking for two rates this year.
The main risk to Gapen’s forecast is a “more favorable” outcome to the G20 meeting this month and stabilization in economic data.
“Our view is that the data is slowing. Risks to the outlook have risen. Inflation is soft. And there are trade concerns. It’s not just a trade story — there is plenty of evidence for the Fed to ease given the macro outlook,” Gapen said of his rate call.