Breaking: Fed Minutes leave the door open to a September rate cut
According to the minutes of the July 30-31 gathering, Fed rate-setters were strongly inclined towards an interest rate cut at their upcoming September policy meeting, with several members even willing to reduce borrowing costs immediately. The Minutes also indicated that "the vast majority" of policymakers believed that if incoming data continued to meet expectations, it would likely be appropriate to ease policy at the next meeting.
Additionally, the minutes highlighted that "many" Fed officials considered the current stance of interest rates to be restrictive, while "a few participants" argued that, given the ongoing cooling of inflationary pressures, leaving rates unchanged would increase the drag on economic activity.
Although all Fed officials agreed to keep rates steady in July, the minutes noted that "several" policymakers believed that the progress in reducing inflation, coupled with a rise in joblessness, "had provided a plausible case for reducing the target range by 25 basis points at this meeting or that they could have supported such a decision."
This section below was published as a preview of the FOMC Minutes of the July 31 Meeting at 08:00 GMT.
- The Minutes of the Fed’s July 30-31 policy meeting will be published on Wednesday.
- Details of Jerome Powell and Co’s discussions about policy easing will be scrutinized.
- Markets wager a roughly 27% chance of a 50 bps Fed interest rate cut in September.
The Minutes of the US Federal Reserve’s (Fed) July 30-31 monetary policy meeting will be published on Wednesday at 18:00 GMT. Investors will scout for details in the Fed policymakers’ discussions about its policy easing strategy and the economic outlook.
Jerome Powell admits officials discussed a rate cut at July meeting
The Fed maintained its monetary policy settings for the eighth consecutive meeting in July, as widely expected. In its policy statement, the US central bank said that it is attentive to risks on both sides of its dual mandate, a change from the June statement, in which it said it was 'highly attentive' to inflation risks.
Although the Fed repeated that it does not expect it will be appropriate to lower rates until it has gained greater confidence that inflation is moving sustainably toward 2%, Fed Chair Jerome Powell’s remarks in the post-meeting press conference all but confirmed a rate cut in September.
"We are getting closer to being at the point to reduce rates," Powell said and added that a rate cut could be on the table in September. Furthermore, he noted that there was a “real discussion” about the case for reducing rates at the July meeting.
Two days after the Fed announced monetary policy decisions, the monthly report published by the Bureau of Labor Statistics (BLS) showed a further cooling of the labor market in July. Nonfarm Payrolls (NFP) in the US rose by 114,000 in July and the 206,000 increase recorded in June got revised lower to 179,000. Additionally, the Unemployment Rate rose to 4.3% from 4.1%.
Powell’s dovish remarks and the soft jobs report allowed markets to fully price in a 25 bps rate cut in September. According to the CME FedWatch Tool the probability of a 50 bps rate reduction nearly reached 50% earlier in August. With upbeat July Retail Sales and weekly Jobless Claims data easing fears over an economic downturn in the US, the odds of a large rate cut retreated toward 25%.
When will FOMC Minutes be released and how could it affect the US Dollar?
The Fed will release the minutes of the July 30-31 policy meeting at 18:00 GMT on Wednesday. Investors will scrutinize discussions surrounding interest rate cuts and the economic outlook.
In case the Minutes show that policymakers who advocated for a July rate cut also voiced their willingness for another rate reduction in September, investors could restart pricing in a large rate cut in September. In this scenario, the immediate market reaction could cause the US Dollar (USD) to weaken against its major rivals. Additionally, the USD is likely to stay on the back foot if the report shows that officials are now more concerned about the negative impact of tight policy on the economic outlook and the labor market rather than inflation.
On the other hand, the USD could gather strength if the publication reveals that officials who preferred to lower the policy rate in July wanted to skip a rate cut in September to have more time to assess incoming data.
Eren Sengezer, European Session Lead Analyst, shares a brief technical outlook for the US Dollar Index (DXY):
“The US Dollar Index remains bearish in the near term, with the Relative Strength Index (RSI) indicator on the daily chart pushing lower toward 30. On the downside, 101.70 (static level from December 2023) aligns as interim support before 100.60 (December 28 low).”
“On the flip side, the 20-day Simple Moving Average aligns as dynamic resistance at 103.50 ahead of 104.10 (200-day SMA). A daily close above the latter could attract technical buyers and open the door for another leg higher toward 104.75 (100-day SMA).”
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.32% | -0.59% | -0.39% | -0.27% | -0.10% | -0.23% | -0.49% | |
| EUR | 0.32% | -0.30% | -0.06% | 0.05% | 0.24% | 0.07% | -0.17% | |
| GBP | 0.59% | 0.30% | 0.23% | 0.36% | 0.50% | 0.37% | 0.14% | |
| JPY | 0.39% | 0.06% | -0.23% | 0.09% | 0.28% | 0.09% | -0.11% | |
| CAD | 0.27% | -0.05% | -0.36% | -0.09% | 0.18% | 0.00% | -0.22% | |
| AUD | 0.10% | -0.24% | -0.50% | -0.28% | -0.18% | -0.17% | -0.39% | |
| NZD | 0.23% | -0.07% | -0.37% | -0.09% | -0.01% | 0.17% | -0.22% | |
| CHF | 0.49% | 0.17% | -0.14% | 0.11% | 0.22% | 0.39% | 0.22% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Author
FXStreet Team
FXStreet
