Will FOMC cut interest rate in July or just warm up for September meeting?

FOMC meeting began on Tuesday amid hopes that Jerome Powell, Fed Chairman, could hint the timing or number of rate cuts at least until the end of 2024, this comes amid accelerating expectations that the Federal Open Market Committee will begin cutting rates in its meeting next September.

These expectations are based on the continuing cooling in inflation at all levels in the United States, which is evident from the data that has been released recently, highlighting that price growth in the country has been witnessing a slowdown in the past few months.

Despite this decline in prices, growth readings are still sending signals to the markets that the US economy is still resilient, showing a great deal of flexibility in the face of the historically high federal interest rates, which reinforces the “soft landing” scenario that includes the possibility that the United States will overcome the sharp rises in inflation rates without falling in a recession.

Economic data

The Personal Consumption Expenditures Index, which is one of the indicators in a series that the Federal Reserve considers the most reliable in measuring US inflation, rose on a monthly basis by 0.2% last June compared to the previous reading, which recorded a greater increase of 0.4%, missing market expectations.

The annual reading of the personal consumption expenditures index in the United States also rose by 2.5% last June, compared to the same month last year, which recorded a higher rise of 2.6%. These numbers were in line with market expectations, which indicated the same figure.

The reading of the US GDP index indicated an increase of 2.8% in the second quarter of this year, compared to the previous reading, which recorded 1.4%, which greatly exceeded market expectations, which indicated 2.00%.

While US growth has risen to this extent, there are still concerns about the possibility of continuing the decline in prices that appeared in the performance of the US GDP price index, as the index fell to 2.3% compared to the previous reading of 2.6%, which is likely what led to a decline in price expectations. The dollar index fell.

A batch of preliminary employment data emerged, highlighting an improvement in labor market conditions to levels higher than market expectations. The Conference Board Consumer Confidence Index reading also rose, which was also higher than market expectations.

These data raised speculation that the US economy has begun to show some signs that prices will stop rising, which would support the decision to reduce interest rates by the Federal Reserve next September, which would further push the Federal Reserve in the direction of reducing interest rates.

Beyond rate cut

It is widely expected that the Fed will make the decision to keep interest rates unchanged; at the same record high levels that it has adopted since last year, so the focus will be beyond the central bank’s decisions on Wednesday. We expect that investors in the markets will focus on the language that is expected to appear in the interest statement issued after the announcement of monetary policy decisions.

Investors also seek references to the timing and number of interest rate cuts in Jerome Powell’s statements during the press conference held after the announcement of the central bank’s decisions and the publication of the interest statement, which comes amid expectations dominating the markets that the Federal Open Market Committee may begin reducing interest rates at the next September meeting.

The Federal Reserve may begin cutting interest rates for the first time in four years at its meeting, which will be held on September 17-18. The central bank has been maintaining the federal interest rate in the 5.25%-5.50% area for a full year, as the Fed raised the interest rate to this level at the July 2023 meeting.

As for the July meeting, which ends on Wednesday, there are a few traders in the markets who see the possibility of the Fed starting to reduce interest rates in the coming hours, but the vast majority of market expectations indicate that the reduction may begin next September, with more clear signs of that expected. In the interest statement and Powell’s statements signals, hints and remarks.