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The United States Federal Reserve has finally kicked off its easing cycle, returning monetary policy towards neutral levels. And already markets are wondering what is next.
At its September meeting, the Fed lowered rates by a larger-than-expected 50 basis points, bringing the US federal funds rate to a 4.75 per cent to 5 per cent range. And while Fed projections point to two more 25 basis points cut this year, markets are pricing in even more - almost 70 basis points.
Ultimately the outlook will be shaped by the push and pull of what the Fed is expecting, what markets are expecting, and what the data look like.
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The US unemployment rate is moving higher, and inflation is easing. But the growth trajectory in the US still looks decent.
ANZ Research expects the Fed will maintain its easing policy by reducing rates by 25 basis points at consecutive meetings until the funds rate is at a range of 3.25 per cent and 3.5 per cent. That is more than 200 basis points of rate cuts in total for the cycle.
The September cut comes at a time when some central banks around the world have begun easing cycles, but we should not expect a synchronous global easing cycle. The pace and the magnitude of cuts will depend on growth, inflation and the trajectory of the labour market over coming quarters.
Mahjabeen Zaman is Head of FX Research at ANZ
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