“I am concerned that adding monetary stimulus, at this juncture, would contribute to a build-up of excesses and imbalances in the economy which may ultimately prove to be difficult and painful to manage,” Kaplan wrote.
Kaplan isn’t alone in doubting the wisdom of fresh stimulus. Eight of the FOMC’s 17 members submitted projections in June that include no rate cuts this year, and one foresaw a rate hike. Investors would be wise to bear in mind that resistance could fade or grow by the end of July.
Despite that, pricing in federal funds futures contracts late on Monday implied investors in that market see a 100% probability of a cut, with about a 15% chance of a half-point move.
Economists surveyed June 20-24 by Bloomberg came down heavily predicting a quarter-point move. Only three of 36 respondents predicted 50 basis points, though none believed the Fed will stand pat.
UBS Securities LLC economists, led by former Fed staffer Seth Carpenter, expect a 50-basis-point cut this month. Still, they argued in a report that even a quarter-point reduction was “not a foregone conclusion.” Progress on trade talks or a positive tilt for global growth, business investment and inflation could alter the Fed’s calculus.
“Strong increases across a number of these normally first-tier economic indicators could give the committee pause and delay the Fed cut at this meeting,” they said.
Story by Bloomberg News.