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Fed officials say rate cut is "closer" but hint July is not the time to do it!

2024-07-18

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Federal Reserve policymakers said on Wednesday that the Fed is "closer" to cutting interest rates given the improved trajectory of U.S. inflation and a more balanced labor market.

Three Fed policymakers point to easing policy starting in September

Fed Governor Waller and New York Fed President Williams pointed to the easing of monetary policy in speeches and interviews. Richmond Fed President Barkin said he was "very encouraged" that the decline in inflation has begun to broaden and hopes to see it continue.

Fed policymakers said price pressures appear to be easing across the board, with lower commodity prices, slower housing cost increases, more modest wage growth and a long-awaited relief in price increases in the service sector.

Williams and Waller appeared to rule out a rate cut at the Fed's July 30-31 policy meeting, with the market currently pricing in a less than 5% chance of a rate cut at this meeting.

Waller listed September to December as a potential time period when conditions are ripe for rate cuts, omitting July. He said the market will learn a lot between July and September and will get two months of inflation data.

Karim Basta, chief economist at III Capital Management, wrote that all three policymakers who spoke on Wednesday pointed to easing policy starting in September.

Financial markets continued to bet on Wednesday that the Federal Reserve will cut interest rates again in November and December, lowering the benchmark policy rate target range to 4.50%-4.75% by the end of 2024.

Governor Waller says Fed could achieve a soft landing

More Fed policymakers said they are increasingly confident that inflation is firmly on track to return to 2% after higher-than-expected data earlier this year.

While inflation has retreated significantly from its peak two years ago, progress has been erratic and rates in important categories have been mixed.

On Tuesday, Fed Governor Kugler said she sees goods, services and now housing contributing to easing price pressures.

Inflation, according to the Fed's preferred measure, was 2.6% in May, down from a peak of 7.1% reached during the pandemic. June data will be released on July 26.

Fed Chairman Powell also said on Monday that the inflation readings in the second quarter of this year have increased "confidence in the downward path of inflation" to a certain extent, suggesting that the start of an easing cycle may not be far away.

Waller said on Wednesday that the Fed is likely to be able to achieve a soft landing and reduce inflation without triggering a painful recession and a sharp rise in unemployment. But Waller pointed out that the unemployment rate rose to 4.1% in June, adding that "the upside risk to the unemployment rate is greater than we have seen in a long time."

Based on the above news, it can be seen that many Fed officials believe that the decline in inflation in the United States is closer to a rate cut, but they seem to think that it is unlikely to cut interest rates in July, and it will not start until September. This will become a potential medium- and long-term negative for the US dollar index, and investors need to be vigilant about this.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Fed officials say rate cut is "closer" but hint July is not the time to do it!

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