July FOMC Meeting Preview

Chief Economist Eugenio J. Alemán discusses current economic conditions.

The Federal Reserve (Fed) doesn’t like to spook markets, that is the reason why it has crafted its communication on monetary policy to give indications way in advance and nothing has been pointing to a change of heart that could lead to a surprise move next week. It is true that ‘Fedspeak’ has become a bit less hawkish after several weak monthly inflation readings during the second quarter of the year compared to the severe hawkishness expressed after the higher-than- expected inflation readings during the first quarter of the year.

Furthermore, external voices have been making appearances on several news media outlets indicating the need to start moving sooner rather than later. The latest one was William Dudley who was the president of the New York Federal Reserve until 2018. He seems to have changed his tune and his view and now seems to believe that the Fed should go ahead and lower interest rates at the conclusion of the July meeting of the Federal Open Market Committee (FOMC) next week.

Others have started to argue that because of the impending slowdown in economic activity during the second half of the year (see our Weekly Economic commentary on July 19, 2024) the Fed is going to have to reduce interest rates by 50 basis points rather than 25 basis points in September. Furthermore, markets are currently pricing in three 25 basis points cuts for the federal funds rate between today and the end of the year starting in September.

RJ Fed Forecast