FOMC is widely anticipated to increase interest rates by 25bps to between 5.25-5.50% today, following a brief pause in June. Recent chatter among financial circles suggests that this could mark the last hike in Fed’s current tightening cycle, as inflation has shown promising signs of deceleration.
However, it’s worth noting that the next FOMC meeting is not scheduled until September 20-21, a significant interval that will witness multiple key data releases. These encompass two sets of PCE inflation, CPI, and non-farm payroll figures. Furthermore, the September meeting will bring updated economic projections from Fed.
Given this context, it is highly improbable that today’s accompanying statement will slacken the tightening bias. Fed Chair Jerome Powell is expected to maintain a cautious approach, underscoring the commitment to curb inflation and even reiterating that Fed policymakers had projected at least one more rate hike this year, in their last projections. However, any departure from these expected messages could precipitate a bearish turn for Dollar and a bullish surge for stocks.
Presently, market expectations for another rate hike stand at only around 20% for September, 40% for November, and 36% for December. Meanwhile, market pricing suggests the first cut could be on the horizon as early as May next year, with an estimated probability of about 81%.
Here are some suggested readings on Fed:
