The Minutes to last month’s Fed rate cut showed that a number of officials stressed the need for Fed flexibility, which should support the argument for the Fed to deliver another rate cut in September. With most officials viewing the July cut as a mid-cycle adjustment, it will take further deterioration with the global outlook for them to commit to an easing cycle. Inflation has seen recent upticks, but the overall longer-term trend has been downward and the risks of becoming Japan should keep the Fed committed to delivering further rate cuts.
The Fed will keep optionality on the table and we should see Fed Chair Powell’s keynote speech at Jackson Hole on Friday solidify a September rate cut and deliver weak commitment for more to come.
The bullish case for stocks remains intact and we could see many focusing on the fact that a couple of FOMC participants supported half-point cut. The Minutes were a non-event and we should see sideways price action until Powell’s Jackson Hole keynote speech on Friday. The Fed could very well correct their communication mistake at Jackson Hole, which would be welcomed holders of risky assets. The markets are still pricing in four rate cuts over the next 12 months.
US stocks held onto their gains while the dollar remains mixed against its major trading partners.
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