Fed Minutes Reveal Favor for September Cut

A look at where the Fed stands ahead of Powell’s annual keynote in Jackson Hole

The Fed faces two paths for the coming months. Under one, officials could cut rates by a quarter-point at each of their next few meetings and then speed up or slow down reductions depending on how…

— Nick Timiraos (@NickTimiraos) August 22, 2024

The Federal Reserve released minutes from its July meeting, revealing that most officials favor a rate cut in September if inflation continues to cool. The minutes showed that the “vast majority” of policymakers agreed it would likely be appropriate to ease policy at the next meeting, as long as data comes in as expected. Wall Street traders already considered a September rate cut a certainty, according to futures prices.

A lower Fed benchmark rate would eventually lead to lower rates for consumer borrowing and could boost stock prices.

⚡POWELL'S JACKSON HOLE SPEECH TO SUPPORT SEQUENCE OF 25BP CUTS

Fed Chair Powell will "express a bit more confidence in the inflation outlook" in his Jackson Hole speech, while putting "a bit more emphasis on downside risks in the labor market" than he did in the July Q&A,…

— *Walter Bloomberg (@DeItaone) August 20, 2024

Chair Jerome Powell is expected to give further guidance on the Fed’s next steps in a highly anticipated speech at the annual symposium of central bankers in Jackson Hole, Wyoming. A rate cut less than two months before the presidential election could bring unwanted political heat on the Fed, which seeks to avoid entanglement in election-year politics.

⚡ POWELL EXPECTED TO SOUND DOVISH, AVOID POLICY HINTS IN JACKSON HOLE

Fed Chair Powell risks not saying enough to satisfy market expectations in his remarks at the Jackson Hole symposium Friday, BNY's John Velis says in a note. He expects Powell to sound dovish, but "we don't…

— *Walter Bloomberg (@DeItaone) August 20, 2024

Several Democratic senators, led by Elizabeth Warren, had urged Powell to cut rates at the July meeting, arguing that delaying a warranted cut based on inflation data would itself be a political act. Inflation has tumbled from a peak of 7.1% in 2022 to just 2.5% now. Recent interviews with Fed officials Raphael Bostic and Austan Goolsbee noted that as inflation slows, inflation-adjusted interest rates rise, supporting a near-term rate cut.

Most analysts think Powell will signal confidence that inflation is headed back to the Fed’s 2% target and possibly hint at how many rate cuts could happen this year. Economic data released after the Fed’s July meeting showed weaker-than-expected hiring and a rising unemployment rate, triggering a sharp drop in the stock market. However, subsequent reports on retail sales and unemployment claims indicated that consumers were still willing to spend and businesses were holding on to workers.

Fed Chair Jerome Powell is set to deliver his policy speech at the central bank’s annual conclave in Jackson Hole, Wyoming. While the presentation is receiving significant attention, the chances of it containing startling news seem remote.

Fed officials favor September rate cut

The market consensus is that the Federal Reserve will start cutting rates in September and likely continue through the end of the year and into 2025. Powell is expected to deliver a review of existing conditions and offer guidance on what lies ahead, but specifics on the magnitude and frequency of rate cuts will depend on incoming data. Minutes from the Fed’s July meeting showed a “vast majority” of members in favor of a September cut, barring any surprises.

Philadelphia Fed President Patrick Harker reinforced this sentiment, stating that in “September we need to start a process of moving rates down.” Markets are betting on a quarter-point cut but leaving open a small chance for a half-point move. In previous years, Powell has used the Jackson Hole speech to outline broad policy initiatives and provide clues about future policy. This time, the task will be to confirm market expectations while indicating his impressions of the economy, particularly moderating inflation pressures and concerns over the labor market.

Analysts expect Powell’s tone to lean dovish, acknowledging economic headwinds and the progress made in the inflation fight. Goldman Sachs forecasts rate cuts at each of the next three meetings, followed by more easing in 2024, eventually reducing the fed funds rate by about 2 percentage points. U.S. stocks declined on Friday as markets eye potential rate cuts from the Federal Reserve.

The U.S. dollar rebounded and Treasury yields rose, contributing to a complex economic landscape. The main focus of market participants is now on an upcoming speech by a key figure from the Federal Reserve, which is expected to provide guidance on future U.S. rate cuts. In other news, world shares steadied, sitting just 1% shy of all-time highs.

This stabilization comes as the global market awaits further direction from central banks. Traders are closely monitoring developments and adjusting their strategies accordingly. The New York Stock Exchange saw a busy trading day, with participants navigating the intricate market conditions.