The Fed’s blackout begins Friday at midnight and there’s little chance of a rate surprise unless officials announce it first. The main chance to do so today comes with Powell’s appearance at 12:30 p.m. ET at the Economic Club of Washington.
Other than that, we’ll hear from a handful of officials. Key figures who could signal include Waller on Wednesday at 9:35 a.m. ET, Daly at 6:05 p.m. Thursday, and Williams at 10:40 a.m. ET.
The market is currently pricing in a 12% chance of a rate cut in July after the surprise drop in the CPI. Goldman Sachs says the decision should be made sooner rather than later:
Using the latest unemployment and inflation figures, we estimate that the Fed’s staff-average monetary policy rule now implies a 4% federal funds rate, well below the effective rate of 5.25% to 5.5%. Based on this observation, the encouraging June CPI, and Chairman Powell’s congressional testimony last week, we expect the adjustment cuts to begin soon. Markets are almost fully pricing in a rate cut at the September 17-18 FOMC meeting, which remains our base case. But we see a strong case for a rate cut as early as the July 30-31 meeting. First, if the case for a cut is clear, why wait another seven weeks before delivering it? Second, monthly inflation is volatile and there is always the risk of a temporary reacceleration, which would make a September rate cut difficult to explain. Starting in July would avoid that risk. Third, the FOMC has an undeniable (if never acknowledged) incentive to avoid cutting rates in the last two months of a presidential election campaign. That doesn’t mean the committee can’t cut in September, but it does mean that July would be better.
As for September, there is now a 28 basis point chance of a rate cut, or more than 100% chance of a 25 basis point rate cut.
For the end of the year, pricing is 67.9 basis points or two full cuts and a 70% chance of a third cut.
Looking ahead, a year ago, the market was pricing in a 147 basis point cut, which would put the federal funds rate in the 3.75%-4.00% range.