The fed funds rate was held at a range between 5.25-5.50% in a unanimous vote on Wednesday, although the FOMC’s statement was subject to a handful of dovish tweaks.
In it, the Fed noted that there had been ‘some’ further progress towards the 2% inflation goal, having said in June that ‘modest’ progress had been made. Meanwhile, policymakers are now ‘attentive’ to risks on both sides of the dual mandate, rather than merely emphasising inflation risks, with inflation seen as ‘somewhat elevated’, a downgrade from ‘elevated’.
Chair Powell’s press conference was even more dovish than we had anticipated.
He said that it was ‘coming to be time’ that the Fed adjusts rates, while saying that a September rate reduction could be on the table. We think that a September rate cut from the Fed is effectively set in stone following this week’s announcement.
The main question now surrounds the pace of easing beyond the September meeting.
Market participants have viewed Powell’s remarks as an indication that the Fed could cut rates at every meeting during the remainder of the year. Our base case remains for just two cuts in September and December, although the heavy emphasis placed by the Fed on the labour market suggests that this is not guaranteed.
Today’s NFP report will take on added importance, with economists eyeing a modest easing in both net job creation and annual wage growth.
The information contained in this document was obtained from sources believed to be reliable, but its accuracy or completeness cannot be guaranteed. Any opinions expressed herein are in good faith, but are subject to change without notice. No liability accepted whatsoever for any direct or consequential loss arising from the use of this document.
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