For about a year, the refrain has remained the same: Don't expect Federal Reserve policymakers to adjust their benchmark interest rate when they meet on Tuesday and Wednesday. This may be the last time that chorus is heard, with today's gathering likely to be the final meeting of the current cycle that the FOMC leaves rates on hold. A plurality of
Wall Street Breakfast subscribers see the central bank cutting rates
for the first time in September, compared to any of the other coming meetings or no policy changes for 2024.
Snapshot: If there's one big character trait of Fed Chair Jay Powell, it's that he doesn't like to surprise. Unlike at today's press conference, he's only likely to telegraph his views
in the coming weeks after feeling fully comfortable with the economic data (like CPI, PCE, non-farm payrolls, etc.). "We believe Powell will wait until Jackson Hole end August to deliver the explicit September cut signal," Evercore ISI's Krishna Guha wrote in a research note. "The Fed leadership is proceeding methodically to build the case for a cut and internal consensus as to the game plan for subsequent moves."
While
Q2 GDP came in stronger than expected last week, labor market trends will likely remain key. As Powell emphasized in recent comments, the risks to the Fed's dual mandate of price stability (i.e., 2% inflation) and maximum employment are coming into better balance. Some even think the Fed Chair will say that the two sides are now balanced, which is a big change from the start of the year (when the risks were mainly focused on price stability vs. labor). Easing labor market conditions also means there's a reduced chance of large wage hikes that can re-ignite inflation.
Commentary: SA analyst Damir Tokic writes that if the Fed doesn't signal for a rate cut in September, "the market will be left disappointed" and
"the reaction could be negative." David Lerner, SA Investing Group Leader of Group Mind Investing, even brings up the potential for a rare inter-meeting rate cut. "
Cutting rates in August is less disruptive politically and could benefit the economy, particularly in the housing market," he explains, while also discussing a contrarian view centered around a decrease of 50 basis points. (
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