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The FOMC decision to not move on July 30 did not surprise us or the markets, but its forward guidance, as non-committal as it was, did. Coming into this meeting, we had expected the Fed’s messaging to move firmly toward the labour market, with a clear signal that room for a September rate cut was emerging. To the contrary, the July 29-30 meeting’s concluding statement and Chair Powell’s subsequent press conference were reflective of persistent uncertainty along with a lack of immediacy in changing the policy stance. The Fed’s official analysis was characterised by a recognition that the US economy has shown remarkable resilience to the trade shocks thus far, with production, jobs, and prices in well-behaved territory. Two Fed governors dissented with the July pause decision, favouring a rate cut, but there was a dose of political posturing associated with their votes. This remains Powell’s FOMC, Trump’s incessant pushback notwithstanding.
The FOMC statement reflected virtually no change in its take on the economy. The terms used to describe inflation ("somewhat elevated"), unemployment ("low"), and labour market ("solid") were the same as before.
There will be a good amount of data released between now and the mid-September meeting, with two more employment and two more months of inflation reports. Tariff related uncertainty may not dissipate, but would likely decline somewhat by then, in our view. Odds of a policy easing in September, given Powell’s signals, are no more than 50-50. We would need to see material weakness in the labour market, along with a continuation of well-behaved inflation outturns, for the Fed to cut.
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