USD: following the Fed meeting, Westpac expects a rate cut in July, especially if Trump increases import tariffs

In a note published earlier today, Westpac points out that at yesterday's June Fed meeting, the FOMC's monetary policy stance changed significantly and that, although their fundamental view of the economy remains constructive, "uncertainties" now prevail.

"The economic forecasts remain constructive. The only forecast for a major revision of the real economy in June was the 2019 inflation forecast, which was revised downwards from 1.8% to 1.5%."

"There was also no change in the GDP forecast, with growth above the trend over the forecasted horizon, when the unemployment rate forecast was actually somewhat lower - despite May's material disappointment in terms of NFP non-farm jobs."

"However, there is a significant risk that after the G20 meeting in Osaka, President Trump will extend tariffs by 25% to the remaining $300 bil. of imports from China.

Given the weakness of US investments and business confidence, in such a scenario, the FOMC could easily justify shifting the first rate cut to July and be more concerned about the outlook. The risk of the imposition of this tariff shortly thereafter could also see the FOMC law take effect in July."