Philippe Waechter, chief economist at Ostrum AM, says that while there are arguments for a US Federal Reserve interest rate cut by July, he does not hold such expectations because of has particular reading of ongoing macroeconomic data.
Shares the view in his most recent blog post, Waechter says that: "Macroeconomic data are still strong and do not reflect the imminence of a rapid downturn. Of course there are bleak expectations contained in the long term interest rates' profile but macro data, from the ISM to the unemployment rate, are still strong and are not showing weaknesses".
In his opinion, the US employment figure of 75,000 for May - which some analysts saw as below expectations - cannot be considered yet as a change in trend; the monthly average for the last three months is still at 150,000 (May data included). On the inflation side, figures are low. The core US inflation rate is at 1.6% in April. Therefore, Waechter mentions that acting preemptively is risky because the economy, even in the short run, is not following a deterministic process. Acting too rapidly may be interpreted as an acceptance of Trump's criticisms, and perceived as a reduction in the Fed's independence. Acting too rapidly could also be perceived as a way to limit risk overhanging equity markets.
Waechter notes: "It's not in the Fed's targets to manage the stock market except when a large drop may be associated with a problem of liquidity and a possible macroeconomic risk, but this is not the case yet. The Fed has to wait before changing its monetary policy, it must perceive continuing weaker data at the macro level. I think it will come during next fall. Then the Fed will have the possibility to act. This will not prevent the US economy falling into a recession. Economic dynamics show persistence and the momentum cannot be inverted instantaneously."
In other words, Waechter states that "there are bleak expectations (lower long term interest rates) but real data are still robust and inflation is low. This is not a recipe for a rapid change in the monetary policy stance".