• Fed holds overnight rate range steady at 5.25%–5.5%.
• Retains assessment that “the economic outlook is uncertain.”
• Repeated that no cuts until “greater confidence that inflation moving toward 2% goal.”
• Finally sets stage for rate cuts later this year.
   

Closer

For the 8th straight meeting, the Federal Open Market Committee left rates unchanged. Short-term rates continue to sit at a more than two-decade high, at least 2% above current inflation rates. The Committee kept language in its press release stating that it does not expect to cut rates “until it has gained greater confidence that inflation is moving sustainably toward 2%.” It changed one word in the goal sentence: from “modest further progress” on inflation to “some further progress.”

In Powell’s press conference, he said that a rate cut could happen as “soon as the next meeting.” He qualified the statement by reminding the audience that a rate decision depends on incoming data. There are two more job and inflation reports before the mid-September meeting.

Prior meeting statements focused on the Committee’s focus of “highly attentive to inflation risks.” This was changed today to “attentive to the risks of both sides of its dual mandate.” In other words, progress on inflation has slowed down so we are now focusing on unemployment and jobs.

Today’s statement reinforced the shift in focus to jobs by pointing out that job gains have “moderated” and that the unemployment rate has moved up.

Powell did emphasize that no decision about future rate moves has been made by the Committee. Despite that qualifier, his statements above are the loudest shouts yet at the markets that lower rates are on the way. Markets took Powell’s remarks as a Risk On opportunity and pushed stock and bond prices higher. 

Summary

After May’s FOMC meeting, we pointed out that the Fed has never been successful in beating inflation by leaving rates alone. We stand by our idea that this second-gear economy with now-average job growth does not need rate cuts to fuel faster growth. Nor is a recession in the cards this year given the amount of government spending in an election year.

Today’s positive reaction in both stock and bond markets reflects prospects for continued easy monetary conditions from both the Fed and Congress. 

Please let us know how we can help you.

Steve Orr is the Managing Director and Chief Investment Officer for Texas Capital Bank Private Wealth Advisors. Steve has earned the right to use the Chartered Financial Analyst and Chartered Market Technician designations. He holds a Bachelor of Arts in Economics from The University of Texas at Austin, a Master of Business Administration in Finance from Texas State University, and a Juris Doctor in Securities from St. Mary’s University School of Law. Follow him on Twitter here. 

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