Central Bank Releases This Week

Before heading into peak summer vacation mode in August, the Federal Reserve, Bank Of Japan, and Bank Of England  all convened for policy meetings this week. In a blog post from Monday, July 29, Prattle, a Liquidnet company, used its Central Bank Analytics to forecast that the BOJ and BOE were both likely to hold rates but signal willingness to cut them in the relatively near future. It also predicted that the Fed was likely to cut rates 25bps while signaling that further stimulus could be on the horizon.

As we saw on Wednesday, July 31, the Fed did indeed cut rates 25bps at the July FOMC meeting. As Prattle’s analytics projected, this rate cut was accompanied by neutral, as opposed to dovish language. The lack of dovish language in the FOMC statement, and especially in Chairman Powell’s press conference, drove a stock market sell-off and drew President Trump’s ire. While many traders and portfolio managers were surprised by the neutral or even slightly hawkish tone of Powell’s remarks, Prattle had projected precisely this tone leading up to the FOMC meeting. Based on the June Summary of Economic Projections (SEP), Prattle also accurately projected that two Fed officials would dissent from the rate cut decision due to the relative strength of current economic data.

What next?

Looking ahead, Prattle’s Central Bank Analytics continues to indicate that the Fed has a neutral tone, reflecting the tenuous nature of the U.S. labor market and near target inflation, but weakening global markets and a softening domestic growth outlook.

By Evan Schnidman, CEO of Prattle, a Liquidnet Company

Harrison Short