On the July FOMC

The FOMC did not give the full-throated signal for a September cut that it seemed markets were expecting. But the seemingly subtle changes in statement language, acknowledging progress on inflation and establishing a neutral balance of risks, seems to have been enough. Powell put a September cut “on the table” at least three times in the post-meeting presser, saying that data even in its current configuration would be sufficient to justify it. There will be two inflation reports before the September FOMC, and July’s is sure to be outright deflationary. Jackson Hole in late August is effectively another FOMC meeting where a more definitive pre-announcement could be made. One year after the Fed stopped hiking rates, the economy has stayed out of recession and markets have performed well – implying the hiking was more normalization than tightening, in the face of a higher-than-previously expected neutral rate. Recent easing cycles have been associated with inferior market performance, but those followed policy plateaus in which the Fed was too tight for too long. That is not the case this time.