As expected, the U.S. Federal Reserve kept its target interest rate range at a 23-year high of 5.25% – 5.50% in July.
In its statement, the Fed noted that:
- Job gains have “moderated,” a change from the previous statement saying it “remains strong”
- The unemployment rate has moved up but “remains low”
- Inflation has eased but remains “somewhat elevated”
Overall, the Committee felt that the risks to achieving its employment and inflation goals are moving into “better balance” but it still won’t be appropriate to cut its rates “until it has gained greater confidence that inflation is moving sustainably toward 2%.”
Link to the July FOMC Statement
In his presser, Fed Chairman Powell shared that there was a “real discussion” over cutting rates THIS MONTH, but that “a strong majority” supported keeping policies steady at this meeting.
He detailed that the Q2 inflation readings have added to their confidence that inflation is moving “sustainably” toward its 2% target and that the Committee is positive the economy is “moving closer to the point at which it would be appropriate to reduce our policy rate.”
The remaining uncertainty will be “whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market.”
Powell added, “If that test is met, a reduction in our policy rate could be on the table for as soon as the next meeting in September.”
When asked about the likelihood of a 50bps rate cut, Powell replied, “I don’t want to be really specific about what we’re going to do, but that’s not something we’re thinking about right now.”
TL;DR: Unless the sky falls between now and September, the Fed will likely cut its target range by 25bps at its next meeting.
Link to the July FOMC Press Conference
Market Reactions
U.S. dollar vs. Major Currencies: 5-min
Overlay of USD vs. Major Currencies Chart by TradingView
The U.S. dollar took some hits following the weaker-than-expected ADP and quarterly employment cost index reports printed in the early U.S. session.
The selling calmed down shortly before the anticipated FOMC decision. It then briefly traded higher at the statement’s release, likely because the release didn’t contain statements supporting a “higher for longer” interest rate environment.
However, the tides changed when JPow’s presser rolled out and the Fed head honcho started sharing their increasing confidence to cut interest rates as early as September.
The dollar traded back down and made new intraday lows against some of its major counterparts before chilling in ranges near the end of the day.