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July Press Conference: Mind The Gap

FED

Assuming today's decision goes as expected (+75bp), the main immediate question to be raised for Powell today is the FOMC’s current thinking on the September rate decision. Some other areas of focus:

  • How to explain the gap between Fed expectations and market pricing? The June Dot Plot saw a 3.8% end-2023 Fed funds median, which is now well above market pricing for a terminal rate to be reached in the 3.25-3.5% range in Q1 2023 and end-2023 rates closer to 2.9% (and 2.5% end-2024 vs 3.4% Dot Plot). It would be interesting to hear what Powell has to say about the FOMC’s current expectations of the terminal rate in this context.
  • Did the FOMC discuss rising risks of recession? Powell could repeat the FOMC’s “unconditional” commitment to bringing inflation down to target, and the necessity to ensure price stability in order to have a healthy labor market.
  • Can Powell provide more specific guidance on the outlook beyond “neutral”? In particular, is the thinking any different to what it was in June, given incoming data?
  • Is the FOMC encouraged by apparent progress on inflation expectations and / or ebbing commodity prices?
  • Any more QT guidance? While nothing new on balance sheet policy is likely to develop at this meeting, Powell will probably be questioned about any potential new thinking about runoff, or how the September 1 acceleration in asset reduction could shape the September FOMC rate decision.
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Assuming today's decision goes as expected (+75bp), the main immediate question to be raised for Powell today is the FOMC’s current thinking on the September rate decision. Some other areas of focus:

  • How to explain the gap between Fed expectations and market pricing? The June Dot Plot saw a 3.8% end-2023 Fed funds median, which is now well above market pricing for a terminal rate to be reached in the 3.25-3.5% range in Q1 2023 and end-2023 rates closer to 2.9% (and 2.5% end-2024 vs 3.4% Dot Plot). It would be interesting to hear what Powell has to say about the FOMC’s current expectations of the terminal rate in this context.
  • Did the FOMC discuss rising risks of recession? Powell could repeat the FOMC’s “unconditional” commitment to bringing inflation down to target, and the necessity to ensure price stability in order to have a healthy labor market.
  • Can Powell provide more specific guidance on the outlook beyond “neutral”? In particular, is the thinking any different to what it was in June, given incoming data?
  • Is the FOMC encouraged by apparent progress on inflation expectations and / or ebbing commodity prices?
  • Any more QT guidance? While nothing new on balance sheet policy is likely to develop at this meeting, Powell will probably be questioned about any potential new thinking about runoff, or how the September 1 acceleration in asset reduction could shape the September FOMC rate decision.