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Cut interest rates in September? Wall Street's First-line Interpretation of the Federal Reserve Resolution: Not so Absolute
Just before the Federal Reserve announced the interest rate on Thursday, Wall Street expected that the Fed would hint at the interest rate cut in September at this meeting. As a result, the Federal Reserve only issued a minimal interest rate cut in September in its FOMC statement on Thursday.
Analysts and strategists on Wall Street have different views and understandings about the Fed's statement of "doves who are less than expected", but it is generally believed that this is the management of investors' expectations by the Fed in order to have more room for operation in the interest rate decision in September.
Leo He, a trader at UBS, believes that the statement of the Federal Open Market Committee (FOMC) is undoubtedly more dovish than that in June, because the Fed changed its wording and said that they are now focusing on the two major tasks of inflation and employment, not just inflation.
The Fed keeps interest rates unchanged. In the policy statement, the Fed changed the wording to "The Committee is concerned about the dual task risks of inflation and employment", while the previous wording was "The Committee is still highly concerned about inflation risks".
However, the Fed still insists that "it is not appropriate to cut interest rates until it is more convinced that the inflation rate is moving towards 2% in a sustainable way".
This statement is undoubtedly more dovish than that in June, because the Fed said that it is now focusing on two major tasks, but this is definitely not a complete dovish turn.
Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, pointed out that the Fed's response this time is very good:
The Fed's statement was quite balanced, which captured the easing of inflation and the real economy well, and did not encourage the interest rate hike in November.
If nothing unexpected happens next, the interest rate cut in September should still be feasible. At present, it is difficult to see what can stop them from doing so.
Win Thin, head of global market strategy at BBH:
I think that many people hope that the attitude of the Fed can be loosened, but the Fed has not hinted that it will cut interest rates in September anyway. I think they will cut interest rates, but this time the FOMC statement is slightly less dovish than expected, which shows that the Fed is trying to protect itself.
Ira Jersey, Chief Interest Rate Strategist of Bloomberg Intel:
Overall, the Fed's policy statement seems to meet our expectations because it is balanced. The new wording "pay attention to the risks of inflation and employment" does not mean that the interest rate cut in September is imminent.
Neil Dutta, chief economist of Renaissance Macro:
The wording of the Fed meeting is very cautious and balanced, which also means that the Fed will have to make a more obvious wording change in September. The minutes of the next meeting and the Jackson Hole Central Bank meeting in August will provide more information.
Ellen Zentner, economist at Morgan Stanley:
The FOMC statement shows that the characteristics of inflation and the labor market have changed significantly, and emphasizes the risks of dual tasks. The emphasis on the cooling of the labor market is an important shift to a more balanced tone, which we think is ready for the Fed to cut interest rates in September.
Anna Wong, chief economist of Bloomberg Economics, pointed out that the Fed may want to consider more economic data before actually releasing the interest rate cut signal:
This policy statement contains very few red lines, but they send an important message to investors: Fed officials are definitely not ready to cut interest rates in July, and they don't want to convince investors that they will cut interest rates by 25 basis points in September, not to mention that the market has been expecting the Fed to cut interest rates by 50 basis points recently.
The new statement retains the wording that the FOMC Committee is "not expected to cut interest rates" before "enhancing confidence" in the deflationary trajectory, which is a hawkish move. Nevertheless, by acknowledging the recent rise in unemployment, and adding that they are now equally concerned about the full employment sector, FOMC did retain the hope of cutting interest rates in September.
In our opinion, the main reason why they only gave the lowest hint about the interest rate cut is that there are still a lot of data to be released before the FOMC meeting in September: two inflation and employment reports, when the data may change greatly. When Powell delivered a speech in Jackson Hole at the end of August, it may be the best time to make it clear that he will cut interest rates in September, when he has mastered the employment and inflation data for one more month.
Risk warning and exemption clause
The market is risky and investment needs to be cautious. This paper does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situation or needs of individual users. Users should consider whether any opinions, viewpoints or conclusions in this article are in line with their specific situation. Invest accordingly at your own risk.