Powell made it as clear as possible that the September cut is firmly on the table.
The Fed made no changes to its monetary policy in the July meeting, as widely anticipated. Powell avoided pre-committing but firmly opened the door for initiating rate cuts in September. The Fed sees plausible scenarios ranging from ‘zero to several cuts this year’. Focus is on the risk of sharp deterioration in labour market conditions, but we see no reason for panic yet. Markets price in a 10-15% probability for a 50bp move in September and a cumulative 72bp of cuts by year-end.
He saw plausible scenarios ranging from ‘zero to several cuts this year’. We have called for 25bp rate cuts in September and December, followed by four more in 2025, which is now already firmly on the hawkish side of current market pricing. So why don’t we believe in rapid cuts? Simply put, we still think the economy remains on a solid footing.
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