Summary

🔗Link to official statement

✅Interest Rates: The federal funds rate remains unchanged at 5.25%-5.50%. The committee emphasized that this rate will not be reduced until inflation moves sustainably toward the 2% target.

✅Economic Activity: Economic activity continues to expand at a solid pace, with recent data indicating robust growth. However, job gains have moderated, though the unemployment rate remains low.

✅Inflation and Employment Goals: The FOMC noted that the risks to achieving its dual mandate of maximum employment and stable prices have moved into better balance.

✅Inflation: Inflation has eased somewhat over the past year but remains elevated. The committee is closely monitoring inflation risks and remains committed to achieving its 2% inflation goal.

✅Employment: The labor market remains strong, with low unemployment. The committee noted that job gains have been robust but have shown signs of moderation in recent months.

✅Future Policy Adjustments: The FOMC will assess incoming data and the evolving economic outlook to guide future policy decisions. The committee does not foresee reducing the federal funds rate until inflation shows a clear and sustained decline toward the 2% target.

✅Balance Sheet Reduction: The Federal Reserve will continue reducing its holdings of U.S. Treasury securities and agency mortgage-backed securities, maintaining monthly caps of $25 billion and $35 billion, respectively.

✅Economic Projections: The FOMC maintained its GDP 2.6% (excluding trade) growth forecast for 2024-2026, while slightly increasing its unemployment and inflation expectations for 2025 and 2026.

📝Powell Speech Notes

✅Labor market has come into better balance

🤷‍♂️However this is due to increased fiscal spending, we are at all time highs.

✅Economic Activity has expanded at a decent pace.

✅Investments in housing have stalled in the second quarter after significant gains in the first quarter.

✅Inflation has eased notably.

✅Maintain policy rate as long as needed.

✅We are moving closer to where it may be appropriate to reduce policy rate.

✅This could happen as soon as the next meeting.

✅If we get a disappointing reading, we would weigh that against a September rate cut. It won’t be one thing, but a cut in September could be on the table.

✅We want more good data, we’ve seen progress, we want more of it.

🤷‍♂️Powell trying to be pragmatic

✅We’ve gained confidence.

✅Inflation conditions back to 2019 conditions – that was not an inflationary environment.

🤷‍♂️This is very dovish essentially saying September rate cut is on the table provided we have acceptable jobs/inflation data.

✅Progress on both inflation and employment conditions are equal.

✅We are in a completely different economy (in comparison to last year). We’ve made a lot of progress.

✅What we are seeing now is better than what we saw last year. Last year was progress on goods – now we are seeing broader progress (in non-housing and housing services).

✅This is so much better than where we were, even a year ago. Job is not done, I want to stress that. But we need to note progress.

✅Risks to inflation rising have decreased.

✅Majority supported not moving today.

🤷‍♂️That means some members did want to cut rates this meeting.

✅We are seeing lags show up now.

✅We have a lot of room to respond (If we see a market slowdown). But that’s not what we are seeing; its not signaling a weak economy. But also not signaling an overheating economy.

✅Worried about SAHM rule? We are aware of it, but we are seeing a normalization. Job creation is at a decent level… and a normalizing labor market.

✅This situation is unique – so much inflation came from the shutdown. It’s why even the inverted yield curve hasn’t worked.

🤷‍♂️This time is different

✅Will get a 50bps cut in September if data comes in worse – No; We will look at the data, no decision made.

✅(Rate cut) We are consensus drive. Is there a growing consensus? Yes. there is a growing consensus. We think the time is approaching.

✅What are the chances of a hard landing? Chances of a hard landing low. Data doesn’t show a sharp weakness or overheating market.

🤷‍♂️Even though there has been a slowdown the risk to a hard landing continues to increase the longer the fed delays.

✅No consensus on CBDC being a good idea.

Thoughts

🤷‍♂️Overall market liquidity looks to be falling

🔗Link

✅Yields – Inverted more 2s 10s

🤷‍♂️Signaling a greater recession risk.

🤷‍♂️Even with a dovish FED and potentially good Q2 earnings for the remainder of earnings week. Market conditions may be headed lower.

🤷‍♂️Bond market is currently pricing in a recession only a potential slowdown.

🤷‍♂️However the longer the FED waits to cut rates the probability of a recession increases.

🤷‍♂️Monetary policy lags work both ways. A 25bps cut may not be enough, if we enter a period deteriorating market conditions.

🤷‍♂️Since July 11th the Nasdaq has been risk off, bonds yields peaked towards the end of April and has been steadily falling since; indicating upcoming policy rate cuts. Until we witness these the markets may remain risk off.