For weeks, the July FOMC meeting has been billed as a game changer. There have been significant swings around not whether the FOMC would cut rates, but of how many. With a rate cut having been fully priced in for weeks, it has been a case of just how dovish the Fed would be, and how would it guide for future meetings. We take a look at the implications of today’s decision.
This was a meeting statement with something for everyone. 25 basis points of cut was the bare minimum expected. However, the doves will be pointing to options open for more cuts and the balance sheet reduction programme ending two months sooner. However, the Fed still remains data dependent and there were two hawkish dissenters.
FOMC statement changes
There was a huge amount in the statement changes. Primarily the key takeaways include:
No projections this time but…
Still there is a lot here that opens the door to suggest that the Fed is not one and done. Plenty of focus on inflation throughout reflects concerns over subdued inflation impacting on economic performance. The global economy is a concern and having uncertainties to the fairly upbeat domestic outlook, suggests that the Fed could move again on any deterioration. Data dependency is the key now.
However, the dissenting voters are an issue and the wait and see approach will have been disappointing for a market expecting a dovish steer.
This was a mixed/neutral rate cut from the Fed which is the bare minimum that the market had been looking for.
Overall, the doves come out slightly disappointed but the mixed bag has meant that markets have fluctuated in response. Yields higher initially are now back lower again. The dollar has strengthened, but not hugely, whilst equities have only been dragged mildly back.
Earlier today, the market was pricing in around 4 rate cuts in the next 12 months. Now in the wake of the Fed decision, this has driven traders to push for less dovish policy by around 3 basis points by July next year – a mildly hawkish response.
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