EM LATAM CREDIT: LATAM Credit Market Wrap

Source: Bloomberg Finance L.P./MNI 

We've published our review of the September FOMC meeting - Download Full Report Here

• The Fed resumed its easing cycle with the first cut of the year on September 17, of 25bp to a range of 4.00-4.25%. That decision was expected, but the lack of conviction on the FOMC about the rate path forward was a key theme of the September meeting’s release materials, as well as Chair Powell’s press conference.
• Despite a lower rate path signaled in the new Dot Plot, a seeming lack of clarity on delivering those future rate cuts saw an early dovish market reaction subsequently reverse.
• See PDF report for:
  • MNI View
  • Market Reaction
  • MNI Instant Answers
  • Press Conference Transcript
  • FOMC Meeting Links
  • Policy Statement Changes
  • Dot Plot/Econ Projections

On inflation, Powell said “since April, to me, the risks of higher and more persistent inflation have probably become a little less… We continue to expect it to move up, maybe not as high as we would have expected it to move up a few months ago. The passthrough of the tariffs into inflation has been slower and smaller. The labor market has softened. So the case for there being a persistent inflation outbreak is less.” 

• On whether the Fed would have cut earlier in the year had they known payrolls would be substantially revised lower: “We have to live life looking through the windshield rather than the rear view mirror, as you know, and all I can tell you is we see where we are now and we take appropriate action. And we took that appropriate action today.”
• All of that sets up what, as Powell said, would be a meeting-by-meeting approach. It’s possible we could get more sensitivity to individual releases, as there aren’t many major ones ahead of the next decision at end-October (one CPI, one nonfarm payrolls). A stronger-than-expected employment report in particular could see conviction on an end-October cut dissipate quickly. As such the 85+% priced 25bp cut at that juncture may be on the high side depending on one’s forecasts for the monthly data.