Today the FOMC announces its 3rd rate policy decision of the year. No change is expected to the current 5.50% target rate with only a 0.5% implied probability of a cut. A string of worrisome economic data showing rising inflation combined with a strong labor market (and its rising wages) has reduced investor expectations to a single 25 basis-point cut this year, down from seven cuts (totaling 1.75%) earlier this year.
Granted, things really were going the Fed’s way for a while with Y/Y CPI reaching 3.0% last June and accolades heaped on Fed Chairman Powell for engineering a ‘soft-landing’, the unicorn of Fed rate policy management. Since June 2023 CPI rebounded to as high as 3.7% and hovered in a mid-3% range since then. In hindsight we now know that what was supposed to be a soft landing was inflation just buzzing the tower, in true Maverick form.
While no rate change is anticipated, the Fed is expected to shift to a more ‘hawkish’ stance (i.e. prolonged elevated rates and the possibility of broaching the topic of rate hikes).
The dollar is little changed from yesterday’s close with ranges of +0.06% to -0.25% vs. the G10 pairs, a holding pattern with a slight advantage going to dollar weakness.
U.S. Treasury yields are lower in most tenors, but in minor moves similar to the dollar.
Gold was -2.09% yesterday, its 2nd significant daily decline since peaking at $2,431.29 in mid-April, dripping 6.03% since then. Global equity indexes are trading in the red in anticipation of a hawkish Fed shift.
