Rate futures markets are pricing in a 100% chance of a cut by September, with the only difference of opinion being on the size.
Although the focus is on September, when the United States Federal Reserve (Fed) begins to cut its interest rates, at least several American central bankers were eager to start that debate at the meeting of monetary policy July, Reuters reported.
He Federal Open Market Committeeresponsible for setting the monetary policy of the Fedended that meeting by leaving its benchmark overnight lending rate in the 5.25%-5.50% range, where it has been since July 2023, but officials agreed to a number of key changes to the policy statement that opened the door to a rate cut at their meeting next month.
That expectation was further solidified by comments from the president of the Federal Reserve, Jerome Powellat his post-meeting press conference, when he said: “If we saw that the inflation low, more or less in line with expectations, the growth remains reasonably strong and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting.”
Two days after the meeting, the Department of Labor reported a marked slowdown in payroll growth in July and the unemployment rate rose to a post-pandemic high of 4.3%.
The indication of a weakening labor market led several officials of the Fed to indicate that they would be ready to consider rate cuts in September. “The balance of risks has changed, so it is appropriate to discuss the possibility of cutting rates in September,” said the president of the Federal Reserve. Minneapolis, Neel Kashkariin an interview with the Wall Street Journal that was emblematic of the shift among monetary policymakers.
Until then, Kashkari had stressed the importance of ensuring that inflation returns to the 2% target. Fedeven if that meant leaving rates where they are until near the end of this year.
Signals of the direction the Fed will take
Last month, officials agreed to several key changes to their policy statement, softening the description of inflation and saying the risks to employment were now on par with those from rising prices — neutral language that sets the stage for rates to fall after more than two years of credit restriction.
But Powell also said some officials “examined the possibility” of cutting rates at the time. Still, he said, “overwhelmingly, the sense of the committee was not that it would be done at this meeting, but at the next meeting, depending on what the data looks like.”
How that debate is reflected in Wednesday’s minutes is key and could be a guide to the scope and pace of what now appears to be an imminent shift toward a monetary policy easing.
Interest rate futures markets are pricing in a 100% chance of a rate cut next month, with the only difference of opinion being the size: a quarter percentage point or half percentage point. The probability currently favors the smaller cut.
Source: Ambito
