Going Into July Meeting, FOMC Participants Reluctant To Identify Cut Timing

FOMC participants’ commentary between the June meeting and the soft June CPI release on July 11 mostly reinforced the main theme from the June meeting: despite the more encouraging inflation data of late, policymakers are not in a rush to cut rates (details in our FedSpeak PDF here).

• Participants said that while they were cautiously optimistic that inflation would sustainably converge with the 2% target, it was too soon to make a determination on when rate cuts can begin. As Powell put it on July 2, “we have the ability to take our time and get this right. And that’s what we’re planning to do.”
• There were two notable shifts in July, though. The first came from Powell who said in his Congressional testimony in the second week of July that the labor market appeared to be fully back in balance, an observation that highlights mounting upside risks to unemployment and thus potential for rate cuts to come sooner rather than later. The second shift came after the June inflation release: Powell said that while 1^st quarter CPI/PCE data warranted caution, “three [inflation] readings in the second quarter, including the one from last week, do add to that confidence” that inflation is converging to the 2% target sustainably.
• Governor Waller on July 17 echoed Powell's comments on recent inflation being encouraging, noting "I do believe we are getting closer to the time when a cut in the policy rate is warranted". He noted that he would need to see "a bit more evidence that this [disinflation] will be sustained", and that he will be "looking for data over the next couple months" to see whether a "soft landing" can be achieved.
• While that suggested that September’s FOMC meeting was in play for a data-dependent cut, neither Waller nor any other participants specifically made that case, in light of concerns that the data could take an unwelcome turn. Indeed Waller implied that his most likely scenario was upcoming data coming in "uneven", making "a rate cut in the near future...more uncertain".
• One good example of post-CPI rate cut commentary was Gov Kugler who on Jul 16 was vague on timing despite apparently favorable recent data (“If economic conditions continue to evolve in this favorable manner … I anticipate it will be appropriate to begin easing monetary policy later this year”).
• No participants appeared to support a rate cut at the July meeting, and Powell on July 15 notably did not try to dispel the impression that the FOMC would hold rates once again.

Source: MNI