As expected, the US Federal Reserve kept its target interest rate range at a 23-year high of 5.25%-5.50% in July.
The Federal Reserve Bank indicated in its statement the following:
- Job gains “It has been modified,” a change from the previous statement that said it “remains strong.”
- the Unemployment rate It’s up but “remains low.”
- economic inflation It has come down but is still “fairly high”.
Overall, the Committee felt that the risks to achieving its employment and inflation goals were moving toward “better balance,” but that it would not be appropriate to cut interest rates.Until I gained more confidence that inflation was moving sustainably toward 2%.“
At his press conference, Federal Reserve Chairman Jerome Powell noted that there was a “real debate” about cutting interest rates this month, but that a “strong majority” supported keeping policy steady at this meeting.
He explained that the second-quarter inflation readings added to their confidence that inflation was moving “sustainably” toward their 2% target and that the committee was positive that the economy was “moving closer to the point at which it would be appropriate to reduce our policy rate.”
The remaining uncertainty will be “Whether the combination of evolving data, expectations, and the balance of risks is consistent with rising confidence in inflation and the maintenance of a strong labor market.“
Powell added:If we pass this test, a cut in our policy interest rates could be on the table by the next meeting in September.“
When asked about the possibility of a 50 basis point rate cut, Powell replied:I don’t want to be really specific about what we’re going to do, but it’s not something we’re thinking about right now.“
Summary: Unless the sky falls between now and September, the Fed is likely to cut its target range by 25 basis points at its next meeting.
Link to the July FOMC Press Conference
Market Reactions
US Dollar vs Major Currencies: 5 minutes
US Dollar Overlay Against Major Currencies Chart by TradingView
The US dollar took some hits following weaker-than-expected ADP and quarterly employment cost index reports released early in the US session.
Selling cooled shortly before the FOMC decision. Prices then briefly rallied after the statement, likely because the statement did not include data supporting a “higher for longer” interest rate environment.
But things changed when JP Morgan’s press conference came out and the Fed chairman began sharing his growing confidence in cutting interest rates as early as September.
The dollar fell again and hit intraday lows against some of its major counterparts before settling into ranges towards the end of the day.