Jun 13, 2019

S&P expects the Fed will be forced to cut interest rates in 2019

Federal Reserve Board Chairman Jerome Powell at a news conference on May 1, 2019. Photo: Mark Wilson/Getty Images

Ratings agency S&P Global is now joining the market chorus — it expects at least one interest rate cut from the Fed this year, citing "increasing headwinds."

Where it stands: Earlier this year S&P predicted the Fed would hold rates steady through 2019, but said Wednesday it expects the overwhelmingly negative impacts from tariffs to put enough stress on the U.S. economy that the Fed will be forced to act.

What's happening: "[T]he winds have shifted, with the Trump Administration fighting trade battles on more than one front, which we think could disrupt global supply chains and weigh on business and consumer confidence," analysts at the agency said in a statement.

  • S&P also noted that the outlook for the U.S. economy has worsened since January, "with signs that more businesses have closed their wallets and investor skittishness feeding into financial market unrest."

Between the lines: The "deceptively strong" GDP reading in the first quarter masked a number of weakening signals on the economy, analysts said, while May's "disappointing" jobs report could be warning of a natural pullback for the economy.

  • S&P expects the Fed to signal at its June policy meeting next week that it intends to begin cutting rates, with an expected cut in September.

A warning: "The Fed may want to move sooner and more quickly than it has in the past."

Go deeper: Why the market shouldn't be excited about Fed rate cuts

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