The Federal Reserve’s two-day meeting to decide on interest rates has begun. This article provides the latest data and expectations ahead of the decision.
Points
- The Federal Reserve is expected to keep interest rates constant in the upcoming decision.
- Investors are anticipating a 25 basis point cut in the federal interest rate in September.
- Market expectations suggest a high probability of rate cuts by the end of the year.
- Analysts predict Fed Chairman Jerome Powell will provide clearer signals at the Jackson Hole symposium in August.
- Market reactions could be significant if the Fed fails to signal a rate cut in September.
The Federal Reserve’s critical two-day meeting to decide on interest rates has begun. The decision will be shared with the world tomorrow at 21:00 Turkey time （UTC +3）, followed by a speech from Fed Chairman Jerome Powell half an hour later. There is a strong expectation that Wednesday’s interest rate decision will keep interest rates constant.
For nearly a year, Fed policymakers have consistently stated during their meetings that there will be no immediate changes to the benchmark interest rate. However, this may be the last period in which this stance remains unchanged. As the Federal Open Market Committee （FOMC） prepares for its July meeting, attention is already turning to the upcoming September session. Investors are expecting at least a 25 basis point cut in the federal interest rate, which currently stands at 5.25%-5.50%, in September. According to the CME FedWatch tool, the probability of a 25 basis point cut is 87.7%, while the probability of a 50 basis point cut is 11.9%.
Market expectations suggest there is a more than 50% chance that the federal interest rate target range will fall to 4.50%-4.75% by the end of the year. Evercore ISI’s Krishna Guha noted that the Fed’s management is carefully preparing to justify a rate cut and build internal consensus for future adjustments. Guha thinks that Fed Chairman Jerome Powell will avoid giving a clear signal of an interest rate cut in September at his post-decision press conference on Wednesday. “We believe Powell will wait until Jackson Hole in late August to give a clear signal on a September rate cut, by which time the Fed will have an additional month of data,” Guha wrote.
Bank of America economist Michael Gapen emphasized in a recent note that markets are pricing in about 2.5 interest rate cuts for the year, but the Fed may not need to cut rates in September. “The interesting question is whether they will step back. If there is any step back, we expect it to be moderate,” he said.
SA Analyst Damir Tokic warned that failure to signal a rate cut in September could lead to disappointment in the markets and exacerbate the ongoing sales in the stock market. Despite this, Tokic predicts that Powell will likely refrain from committing to a rate cut at his upcoming press conference, instead emphasizing the Fed’s confidence in the data.
This is not investment advice.
Analysis
- Rate Expectations: The market’s strong expectation of a rate cut in September highlights the importance of the Fed’s decisions on investor sentiment.
- Fed Communication: Chairman Powell’s statements at the upcoming Jackson Hole symposium will be closely watched for indications of future rate cuts.
- Market Reactions: Failure to signal a rate cut in September could lead to significant market reactions, emphasizing the importance of clear communication from the Fed.