Overnight the US Federal Reserve suggested it is doing nothing at all, and not committing to doing anything in the future... but perhaps setting the market up for a rate cut in September?
The Fed announcement noted "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."
Fed Chairman Jerome Powell did say that “the sense of the committee is closer to cuts but we’re not there yet,” by freely conceding that “downside risks to the labor market are real,” while adding that employment is “not a source of material inflationary pressure,” by calling policy “restrictive, not extremely restrictive but restrictive,” and by cheerfully describing the latest inflation data as “so much better” than 12 months ago.
It was also noted that a cut will happen at the next meeting if inflation moves down “in line with expectations,” which the market reaction would suggest is a way of saying that we should expect a cut.
Powell also strongly denied that politics would make it impossible to cut rates less than two months before the election, nixing one of the biggest arguments against a cut — but he did seem to rule out throwing caution to the wind and cutting by 50 basis points.
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