The FOMC left its overnight rate unchanged in yesterday’s policy announcement. Since no change was expected, the primary focus was on the statement itself for hints of a dovish shift in the Fed’s future rate policy. As it turns out, several changes were made to the statement including some clear dovish signals.
- Inflation has eased over the past year but remains somewhat elevated. In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.
- The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance.
- The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.
In the post-announcement FOMC press conference, Fed Chairman addressed the question of a September rate cut: ‘The question 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. If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.’
The implied probability of rate cuts (based on Fed Funds futures) at the three remaining FOMC policy meetings for the year: September 18th – 118.1%; November 7th – 85.5%; December 18th – 106.7%.
The U.S. Dollar Index is unchanged in trading today but has ranged between a 103.863 low and 104.429 high.
The dollar’s spot returns are evenly mixed vs. the G10, bookended with a 0.30% gain vs. GBP and 0.38% decline vs. CHF. The Bank of England cut its interest rate for the first time in four years, a surprise given odds of a cut were only 58.7% at yesterday’s close based on overnight index swaps. GBPUSD traded as low as 1.2752 in the wake of the cut but has since recovered to trade above 1.2800.
U.S. Treasury yields are lower today by narrow margins in all tenors, the biggest move 0.074 in the 3-year.
Tomorrow’s U.S. economic calendar includes the Change Nonfarm Payrolls for July, estimated 175k (compared to 206k in June).
