The US Federal Open Market Committee (FOMC) kept interest rates on hold last week. Despite an inordinate amount of pressure from Trump to cut rates and elements of US market data signalling a need for loosening of monetary policy, Jerome Powell, Chairman of The Fed, stood firm.

This current situation can only be described as having the key ingredients for a blockbuster movie… not only has the President of the United States explored if he has the ability to sack the Chairman of The Fed, he is also fully embroiled in a trade war with China, which thus far, has resulted in billions of US dollars in lost revenue on both sides of the globe. Powell is certainly stuck between a rock and a hard place; he is in the unenviable position of managing interest rate expectations while Trump continues to bully The Fed to cut rates.

While there was no interest rate rise in June, which is a sensible move, as The Fed must show independence from politics, it is likely that pressure to cut will continue to mount over the coming months. Powell’s speech was certainly more dovish showing a marked shift in language. The Fed Chairman had previously described the committee’s approach to assessing economic data as “patient” however, Powell highlighted that “uncertainties around this outlook increased” i.e. the darkening outlook trade wars with China is having on the economy, coupled with muted inflation means that the committee “will act as appropriate to sustain expansion”.

The question is “how low can The Fed go?” with two interest rate cuts a high possibility in 2019, we could expect as many as three or four before the end of the year; although the current probability of any of these moves is below 40%, which means that markets will take some comfort, for now at least, that The Fed will remain accommodative, which will support markets.

In a move away from monetary policy, which I am sure Powell will no doubt be thankful for, the global focus will shift away from the US to the G20 summit, which will be held from 28th-29th June. Japan will host their first ever G20 summit in Osaka and it’s expected that tensions around trade wars could escalate further.