What the Fed is Watching
During the latest Federal Reserve meeting, the committee made it clear they are focused on three main factors before making any rate moves: labor market conditions, inflation, and international developments (basically Trump’s tariffs).
Will They Cut Rates in September?
When Jerome Powell was asked directly about the possibility of a September rate cut, he didn’t commit either way. He explained that the Fed will have “two more rounds of data” before making any decision and that it’s too early to say where things stand.
Before this meeting, the CME FedWatch tool showed about a 60% chance of a September rate cut. After Powell’s comments, that probability dropped to 46%, which is essentially a toss-up.
How Powell Responded to Reporter Questions
One reporter pointed out that trade deals have been set and the new tariffs are known. Powell responded that the Fed is “still a ways away from seeing where things settle down.” He did acknowledge that market fluctuations have calmed a bit but expects more movement ahead.
When asked what else would drive the Fed toward a cut besides tariffs, Powell said they would look at “the totality of the data.” (so basically a non-answer). Another question focused on the declining dollar and whether that would complicate policy decisions. Powell noted that the Treasury, not the Fed, addresses the dollar and said it hasn’t been a topic of their meetings.
Powell’s Tone vs. Past Expectations
As of now, the Fed appears less likely to cut rates in September, sticking to a cautious “wait and see” approach. That tone is a sharp contrast to Powell’s comments back in 2023, when the Fed expected as many as eight cuts in 2024 due to what they believed was a strong economy. In reality, they only cut rates three times as inflation stayed higher than expected for most of the year. Also in 2023, they said a 2% inflation rate was their goal to push more cuts. Inflation is 2.4% today...I wish a report would bring that up.
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