Forward Guidance In Focus

As suggested by our Instant Answers questions, the main focus in the 2pm ET Fed release will be whether the FOMC signals via Statement changes that it is increasingly amenable to a rate cut (see MNI's FOMC Preview).

• It's more likely than not that there will be new descriptions for recent inflation and potentially unemployment data, and even perhaps a shift in the perception of the balance of risks to the dual mandate variables.
• But most key here will be the forward rates guidance. June’s statement left the forward guidance unchanged, with the key phrase that the Committee “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent”.
• Expectations are mixed over whether this will be revised today. A few analysts that see changes to the forward rate guidance to various degrees that would more clearly signal an intention to cut in September: these include Citi, Deutsche, Goldman, JPMorgan, TD, UBS, UniCredit.
• The change might simply be requiring "some more/further confidence" rather than "greater confidence" before cutting rates. An example of a more substantial rewrite comes from UBS: "Should the incoming inflation data continue to increase the Committee's confidence that inflation is headed sustainably back to 2 percent, then a reduction in the target range for the federal funds rate may be appropriate relatively soon."
• As we noted in our meeting preview, including a hint about the timing of a cut, whether as subtle as "soon" or "an upcoming meeting", would be a fairly clear indication that September is very much live for a cut.
• While it’s far from unanimously expected that the guidance will change, we think it would be interpreted slightly hawkishly if it is not changed at all, putting pressure on Powell to deliver the message at the press conference that the FOMC is cautiously open to cuts at upcoming meetings, and to clarify why the guidance hasn’t changed.