The meeting between U.S. President Donald Trump and China President at next week’s G-20 summit could sway the Federal Reserve at its next meeting, said the chief economist and head of research for Asia Pacific at ING, Rob Carnell.
The U.S. central bank held interest rates steady on Wednesday and indicated that no cuts were coming in 2019.
However, Fed chairman Jerome Powell opened the door to the possibility of rate cuts, after the Fed’s statement was released, when he said: “Many participants now see the case for somewhat more accommodative policy has strengthened.”
The meeting between the leaders of the world’s two largest economies will be “pretty important,” Carnell told CNBC’s “Capital Connection” on Thursday.
Powell had said Wednesday “there was not much support for cutting rates now, at this meeting.” But Carnell pointed out that things could change if the meeting in Japan doesn’t go well.
“The one thing that could really change that would be if we have the Osaka meeting, we have the sideline meeting between Presidents Trump and Xi, and they go away shaking fists at each other about trade,” said Carnell.
“Now that, at that stage, that stuff has to put a rapid rate cut into play,” Carnell said. Very little else could sway the Fed’s stance, he added.
On Wednesday, the Federal Reserve Open Committee (FOMC) changed the language in the June statement to indicate that economic activity is “rising at a moderate rate.” It was a downgrade from its May statement which said economic activity rose at a “solid” pace.
In their baseline scenario, FOMC members said they still expect “sustained expansion of economic activity” and a move toward 2% inflation, but realize that “uncertainties about this outlook have increased.”
Market participants have been concerned over global economic growth, particularly amid the fallout from the U.S.-China trade war.