The U.S. Federal Reserve (the Fed) followed through on its July rate cut with another 25-basis point reduction in its policy rate on Wednesday. This move was widely anticipated across the gamut of economists and investors. Markets were modestly disappointed that the Fed did not flag even more rate cuts in its projections for the rest of this year and into 2020, with the S&P 500 Index selling off roughly 0.5% in the minutes following the announcement.
In our view, the Fed's monetary policy calculus here is actually quite straightforward. There are effectively three interrelated