Federal Reserve FOMC Prospect: July is the last time to raise interest rates, Powell's speech will cater to both sides

Bloomberg wrote an article looking forward to this week's Federal Reserve FOMC interest rate meeting, saying that the Federal Reserve is bound to raise interest rates by 25 basis points at the July meeting. Since the mid-June meeting, mixed economic data may not have quelled the debate within the Federal Reserve about whether the July rate hike should be the last.

Therefore,Powell's remarks at the press conference may appeal to both doves and hawksHe is likely to point out that the economic outlook has brightened and the process of falling inflation has advanced further, which meansThe path to a "soft landing" has widenedCiting the uncertainty of lagging monetary policy,He may suggest that the Federal Reserve may take a wait-and-see approach at its next meeting, while warning that some FOMC members still expect another rate hike this year。

Bloomberg expects:

FOMC members will meet in JulyThey agreed to raise the federal funds rate by 25 basis points。

Most FOMC officials justified the decision to "skip" a rate hike at the mid-June meeting, buying time to "assess the progress of economic conditions". But subsequent data - weaker-than-expected inflation and employment data for June, but surprise upside for most other indicators - have provided insights into the futureMore conflicting signals。

Most FOMC participants probably still believe that,Another 25 basis points neededTo bring interest rates to a sufficiently restrictive level, but their confidence in that forecast may not be as strong now as it was in June.

The policy statement could change the description of job growth from "consistently strong" to "slowed."Suggesting this dovish tendency。

From Powell's perspective, the latest economic data confirms his commitment toThe economy is most likely headed for a soft landing rather than a recessionHis preferred approach is to gradually raise interest rates to guide the economy down a narrow path of a soft landing.

Bloomberg Economics Research Rules - Revised version of the Taylor Rule -The expected end point of this rate hike cycle is 5.5%.Depending on the prevailing forecasts for inflation and unemployment -July is expected to be the last rate hikeFed funds rate futures also showThis could be the end of the cycle。

Bloomberg'sThe baseline scenario is for the Federal Reserve to maintain interest rates steady after hiking in July, and then to cut rates starting in the second quarter of 2024However,There are still some potential negative supply shocks that could reverse the inflation process, ultimately prompting the Federal Reserve to resume rate hikes by the end of 2024"For now, we describe the trajectory of interest rates as'Long pause in rate hikes' after July, after which the chances of the Fed resuming rate hikes are slim”。

Overall, given that recent economic data seem to enhance the likelihood of a soft landing,The FOMC is unlikely to take big action to change the status quo. Powell will take a wait-and-see approach, hinting that a rate hike will be skipped at the September meeting -FXTForeign exchange investors also believe that this "skip" will turn into a long period of inaction.