FOMC: Twas the meeting before rate cuts

Summary

As was widely anticipated, the FOMC left the fed funds rate unchanged at the conclusion of today's meeting, but it opened the door to potentially easing policy at its next meeting on September 18. While inflation remains above the FOMC's 2% target, it has fallen significantly since the Committee last raised rates a year ago. At the same time, the labor market has cooled sufficiently and now resembles its pre-pandemic state. In its post-meeting statement, the FOMC noted the improving balance between its employment and inflation goals and emphasized it is growing more mindful of the risks to the labor market by noting it is "attentive to the risks to both sides of its dual mandate", rather than previously only noting its attention to inflation risks.

We suspect today's decision, post-meeting statement and Powell's press conference statements reflect a compromise among the Committee members. While some more dovish members were likely inclined to reduce the policy rate at today's meeting, more hawkish members are likely wanting to see more data. To thread the needle, we think Chair Powell arrived at a compromise: hold rates steady at this meeting, but send overt signals to the market and broader public that the base case is for rate cuts starting soon. We look for the FOMC to cut the fed funds rate by 25 bps at its next meeting, with a further 25 bps cut in December and an additional 100 bps of easing in 2025.

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