Today, all eyes are on Federal Reserve Chairman Jerome Powell and the Federal Open Market Committee (FOMC) as they conclude a crucial meeting. While it is unlikely that the Fed will announce an interest rate cut today, Powell’s statements could set the stage for a reduction in September or dampen market hopes.

Meeting Details:

The FOMC will release a statement and a decision on interest rates at 2:00 p.m. ET, followed by Powell’s comments and a Q&A session at 2:30 p.m. ET.

Since July 2023, the FOMC has maintained the federal funds rate target in a range of 5.25% – 5.5%. Now, with inflation decreasing and the labor market normalizing, Fed officials are hoping to achieve a rare soft landing for the U.S. economy.

The committee’s next meeting is on September 17-18, which is when investors are anticipating a change. What Powell and officials say about this September meeting will determine market reactions today.

Market Expectations:

According to interest-rate futures market pricing, there is an 88% chance of a quarter-point cut in September, while the chance of a half-point cut is 12%. Bond yields have significantly decreased since spring, as these rate-cut probabilities have increased.

Today’s FOMC policy statement will be critical, as it could include wording changes indicating a September rate cut. Fed watchers and investors will closely monitor Powell’s press conference for further confirmation or insights into the committee’s thinking about what might follow the first rate cut.

Expert Comments:

Jonathan Pingle, Chief U.S. Economist at UBS, wrote: “A statement change would suggest broad consensus and high conviction that September is the time to lower rates. A signal at the press conference would suggest something less definitive. Ambiguity at the press conference would suggest participants lack consensus and conviction, and Powell may need to do more convincing if he wants to lower rates at the September FOMC meeting.”

Following the June FOMC meeting and subsequent public comments, Fed officials noted that inflation has made progress toward the Fed’s 2% annual target and that the labor market is in better balance. If these trends continue, it might be time to ease off restrictive monetary policy before economic growth slows too much.

However, Powell and others have stated that they need to see more encouraging data to be certain. The FOMC’s post-June meeting statement reads: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.”

U.S. inflation measures fell rapidly for most of 2023 before a resurgence in early 2024 delayed the Fed’s rate-cut plans. Data for May and June suggested a return to slowing price growth, with two monthly readings back on track to reach the Fed’s 2% annual inflation target. The consumer price index was essentially flat in May, then declined slightly in June.

Labor market and consumer price index data for July and August will be available before the September meeting and might determine whether policymakers have the confidence they’re seeking to change interest rates then.

Labor Market Expectations:

On Friday, the Bureau of Labor Statistics is expected to report an increase of 175,000 nonfarm payrolls in July, following a 206,000 gain in June. The unemployment rate is expected to remain unchanged at 4.1%.

Powell’s speech at the Kansas City Federal Reserve’s annual Jackson Hole Economic Symposium in late August will be another high-profile opportunity to lay the groundwork for any coming policy shifts.

Fed officials will also publish their quarterly Summary of Economic Projections after the September meeting, which could help frame the path of interest rates for the rest of 2024—the FOMC will also meet in November and December—and into 2025.

Joseph Kalish, Chief Global Macro Strategist at Ned Davis Research, wrote: “Powell has called the first move ‘consequential,’ suggesting that this will be a series of cuts. Powell has said that starting and stopping would not look good.”

Kalish expects a September cut to be followed by another rate decrease before the end of this year, then more cuts in 2025.

It’s a busy period for central banks worldwide. The Bank of Japan will also conclude a meeting on Wednesday, moving in the opposite direction of the Fed. Markets are pricing in a rate increase, and economists also expect a reduction in the BoJ’s bond-buying program. The Bank of England publishes a rate decision on Thursday, with markets pricing in about a 50% chance of a quarter-point cut. The European Central Bank lowered its interest-rate target in June and will meet again in September.

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