FED: Atlanta's Bostic Pencils In No More Cuts this Year, But Watching Data
Atlanta Fed President Bostic (non-2025/2026 FOMC voter) appears to have stuck to his pre-September Fed meeting outlook for just 1 cut this year, telling the WSJ in an interview that "I had one cut for this year. I didn't say the timing for that. So this could easily be the one cut. And so for that, I'm fine with it. I think moving forward, the data is going to be really important and here's what I would say. Forecasting is really hard these days and so I still have one cut down for the year. So that would be it."
- That makes him among the 7 most hawkish members on the Committee in terms of 2025 rates, with 6 of 19 members writing in 4.1% end-year Fed funds in the Dot Plot (1 member wrote in 4.4%, a hold vs the 25bp cut already delivered). Before the September meeting, Bostic said that the Fed should be able to bring policy closer to neutral next year, though he doesn't address that timeline in this interview, instead suggesting that it is going to "take some time" to get sufficient confidence to ease further.
- He says he's adjusted his unemployment and inflation forecasts up, having not yet seen "resolutions" to uncertainty over the labor market and inflation stemming from tariffs. For core PCE he sees 3.1%/headline 2.9% for 2025 and not coming back to target until early 2028, while for unemployment he sees 4.5% in 2025 and 4.4% in 2026.
- Bostic acknowledges the broader FOMC message that "the risks have shifted" but for him, "the risk to the price-stability mandate is still the most significant". And "I don't think the labor market is in crisis right now."
- He's not ruling out support for further cuts this year. He says that he wrote his one-cut 2025 projection "into the SEP with a very light pencil. That information could come in to really reshape my views of the relative balance of risks, and in that case I'd be willing to respond to that."
- While he currently doesn't support a cut at the October meeting, Bostic says that between now and then he will be paying special attention to regional business surveys and sentiment around the workforce: "to the extent that that sentiment remains stable or if it shifts in a dramatic way, that's information that I would definitely take on board in terms of thinking about whether my policy posture should change or the posture of our policy should change."
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FED: NatWest Now Sees Cuts In 2025, Starting In September
As with Deutsche earlier, NatWest has changed its Fed call after the Powell Jackson Hole speech to reflect a 25bp September cut. Previously, the call was for no cuts in 2025. The new baseline outlook includes further 25bp cuts in December and March, bringing rates closer to neutral ("however, the changing composition of the committee becomes far less clear once Powell term expires in May").
- "While the August jobs and CPI reports will be watched carefully, it is clear to us that Powell has already seen enough to decide renewed action to counter downside economic risks is likely warranted, and so we now look for a 25 basis point rate cut on September 17th.
- "We expect officials will very much downplay the likelihood of a 50bp rate cut leading up to the jobs data, but we have to admit if the report is "weak enough" (e.g., the unemployment rate increases by 0.3pct to 4.5% (where officials had it at year end) anything can happen and wouldn't rule anything out. However, given the latest pivot and with financial markets pricing (86% of a 25bp rate cut) a lot has to happen (unemployment rate 3-handle and core CPI +0.5%) for the FOMC to undeliver and hold off from a rate cut in September. "
USDCAD TECHS: Bull Cycle Hindered
- RES 4: 1.4111 High Apr 10
- RES 3: 1.4019 38.2% retracement of the Feb 3 - Jun 16 bear leg
- RES 2: 1.3968 High May 20
- RES 1: 1.3925 High Aug 22
- PRICE: 1.3840 @ 16:55 BST Aug 22
- SUP 1: 1.3794 20-day EMA
- SUP 2: 1.3769/22 50-day EMA / Low Aug 22
- SUP 3: 1.3576 Low Jul 23
- SUP 4: 1.3557/40 Low Jul 3 / Low Jun 16 and the bear trigger
Gains this week in USDCAD and the breach of resistance at 1.3879, the Aug 1 high, marked a positive development, however the slippage into the Friday close undermines this sentiment - for now. Moving average studies have crossed and are in a bull-mode position, reinforcing current conditions. An extension higher would signal scope for a climb towards 1.4019, a Fibonacci retracement. On the downside, support to watch lies at 1.3769, the 50-day EMA - a level not yet challenged by the correction lower.
CANADA: Q2 Expected To See GDP Contraction, BOC's Estimate Looks Too Negative
The June retail sales release helps wrap up the last major data before Canadian Q2 GDP is released on Friday August 29.
- Current Bloomberg analyst consensus shows Q2 is expected to show a 0.7% Q/Q annualized contraction, versus +2.2% in Q1. The private sector consensus is more optimistic than the Bank of Canada's -1.5% estimate in its July Monetary Policy Report (which MNI thinks is too low) but the component-by-component breakdown is similar if of differing magnitudes.
- Widely expected are: a softening in household consumption growth (+1.2% in Q1), with a pickup in government spending, continued weakness in fixed investment (-3.0% in Q1) though with residential outperforming business capital formation, and a reversal of Q2's positive contribution from net exports. In short, the data are expected to confirm that trade activity was brought forward to Q1 ahead of tariffs, with the effects reversing in Q2.
- Going forward, the BOC envisages growth resuming in Q3 (+1.0% in its "current tariff" scenario). In the meantime, a weak Q2 reading could provide Governing Council with more conviction to resume easing rates in September, with the July meeting decision noting "If a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate".
