MNI Fed Preview - July 2024: September Signals In Spotlight

EXECUTIVE SUMMARY:

• The Fed will hold rates for an 8^th consecutive meeting at its July meeting, putting immediate attention on any signals about rate cuts beginning in September.
• While inflation and the labor market cooled in the second quarter, providing a clear path to rate cuts by year-end, underlying demand has remained resilient in defiance of what FOMC officials see as “sufficiently restrictive” policy.
• With the lingering memory of various data "head fakes" in mind on both the upside and downside of the inflation and rate cycles, yet a “soft landing” still seen in reach, the FOMC is likely to express only cautious optimism.
• The policy statement is due for key adjustments to the characterization of recent inflation and employment, and perhaps to the shifting balance of risks – but it’s not clear the Committee will adjust the forward rate guidance, in contrast to previous cycles where it explicitly signaled that it could move rates at an upcoming meeting.
• That would put the focus on Chair Powell to deliver the message at the press conference that the FOMC is cautiously open to cuts at upcoming meetings.
• The absence of a clear signal about an upcoming rate cut would disappoint current market pricing for 2 to 3 rate cuts by year-end, which is more aggressive than the 1 to 2 cuts the FOMC eyed just 6 weeks ago.

Note to readers: MNI’s separate preview of sell-side analyst summaries to follow on Monday Jul 29

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:

FedPrevJul2024.pdf