US Fed Meeting Preview: Will Powell Indicate a September Rate Cut?

The US Federal Reserve's decision tonight is eagerly anticipated, with key economic indicators suggesting mixed signals. A lower-than-expected decline in the US consumer price index, which fell 0.1% in June against Dow Jones estimates of a 0.1% increase, and an annual inflation rate of 3% versus the projected 3.1% could influence the Fed's decision-making process.

On the employment front, Nonfarm Payrolls (NFP) in the US rose by 206,000 in June, surpassing market expectations of 190,000. This suggests that while immediate policy actions are under review, market focus is shifting towards future developments and any potential hints from Fed Chair Jerome Powell on upcoming policy directions.

Potential Scenarios from Reliance Securities

Reliance Securities has outlined two possible scenarios for the Fed meeting outcome:

1. No Change in Interest Rates:

Reliance Securities predicts that the Federal Open Market Committee (FOMC) may choose to maintain key interest rates at their current levels. Despite a relatively low unemployment rate of 4.1%, which has increased over the last three months from a low of 3.4% in early 2023, concerns about recession risk persist. "In this meeting, the language in the statement and press conference will be the key drivers," noted Reliance Securities. Additionally, they pointed out that although inflation has eased, it remains sticky, with slow progress since mid-2023. This could prompt the Fed to caution against an early rate cut to avoid reigniting inflation.

2. Limited Rate Cuts Projection

The second scenario suggests that it is unlikely the Fed will project multiple (three or more) rate cuts in 2024, as this would be bearish for the Dollar Index.

Insights from Market Experts

Aamar Deo Singh, Senior Vice President of Research at Angel One, shared a similar view, stating, "The US Fed is unlikely to cut rates in this week's meeting, though the softness in jobs data coupled with declining inflationary pressure sets the stage for a likely rate cut in the near future, most likely in September."

Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, added, "US inflation is still hovering above the 2% mark, and GDP growth is fairly steady at 2.8% in the second quarter of the calendar year. Thus, there isn't any sign of distress that warrants a rate cut in the forthcoming US Fed meeting. However, market participants have started factoring in a rate cut later in the year in September."

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For more detailed insights, visit the original article on Economic Times here.