Powered by MOMENTUM MEDIA
realestatebusiness logo

Subscribe to our newsletter

New Fed cut ‘reinforces’ need for more RBA easing

The Federal Reserve has slashed rates for the second consecutive month, “reinforcing” the necessity of further cuts to the cash rate in Australia, according to AMP’s chief economist.

The US Federal Reserve (the Fed) has cut its funds rate by 25 bps to 1.75-2 per cent, following on from its first cut in almost a decade in August.

According to AMP Capital chief economist Shane Oliver, the Fed is “taking out insurance” amid threats to the US outlook from trade tensions with China, slower global growth and subdued inflation.  

“The current easing cycle remains a bit like the Fed easing of 1987 after the share market crash and in 1998 after the LTCM hedge fund crisis – that saw the Fed cut despite solid growth in order take out insurance in case there was a negative flow on to the economy,” Mr Oliver said.

Mr Oliver said he expects the Fed to cut rates further over the coming months.

Advertisement
Advertisement

“Our assessment remains that another [25 bps] easing is likely, probably in October, or if not, then in December,” he said.

“The risks to the growth outlook – particularly on trade – won’t go away quickly and that the Fed appears to have taken the decision that it’s easier to control a rise in inflation than a further slide or deflation.”

The AMP economist added that he does not expect the Fed and the European Central Bank’s (ECB) cuts to prompt sharper than anticipated easing from the Reserve Bank of Australia (RBA), but noted that they have “reinforced” the need for further easing.  

“On the one hand, the Fed’s easing, along with stimulus elsewhere globally, should help support global growth, which is good for Australia, [but] it’s probably not enough to change the outlook for the RBA and its perception that global risks have increased,” he said.

“Our view remains that [the RBA is] on track to cut the cash rate to 0.5 per cent in the months ahead in two [25 basis point] moves and to some degree the Fed cutting and the ECB easing last week reinforces that to the extent that the RBA would like to keep the Australian dollar down.”

[Related: GDP outlook propelled by rate stimulus]

New Fed cut ‘reinforces’ need for more RBA easing
The US Federal Reserve
mortgagebusiness

Latest News

Home loans commitments took a positive turn in May following a fall in April, new data reveals. ...

Economists from three of the big four banks expect the Reserve Bank will hand down a similar cash rate hike of 50 bps today (5 July). ...

The banking group has confirmed it will be closing branches under the Westpac, Bank of Melbourne or St.George brands in more than 20 locatio...

VIEW ALL

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

Do you think the new NSW property tax will help or hinder first home buyers?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.