One of the most remarkable things in the macro world is how financial markets and the US Federal Reserve have drifted this year in their view of the US economy.

Last week, the Fed voted 7-3 to cut its key rate, as widely expected, to the 1.75 to 2 per cent range, and official forecasts do not mount a case for further easing in 2019.

But stepping back two months to the July meeting, the market and President Donald Trump were agitating for drastic action: a half-percentage-point cut which the Fed resisted by only delivering a quarter-point under the guise of a mid-cycle adjustment. Although chairman Jerome Powell presented a somewhat-clumsy defence of his strategy, the consequences the market was warning of have not materialised.

“On the basis of the economic data the Fed is actually correct,” says Tim Toohey, who has joined Yarra Capital Management as head of macro and strategy.

Read more…. (subscription to The Australian Financial Review required)