Morning Market Brief August 22, 2024

Getting closer to a Fed rate cut

The US Federal Reserve Board (Fed) has released the minutes from its last meeting, which was held on July 31. At that meeting, the Fed held the target range for its federal funds rate steady at 5.25%–5.50%. While leaving the door open for a potential rate cut this year, the Fed noted it is seeking more confidence inflation will sustainably return to its 2% target. Shifting economic conditions since July 31 might bring about a rate cut in September.

• The minutes from the Fed’s last meeting showed that some Fed officials believed they could have begun lowering interest rates in July.
• However, the group ultimately decided to hold steady. Still, officials noted that if inflation and unemployment moved as expected before the Fed’s next meeting in September, a rate cut is likely.
• Fed officials signalled intentions to cut rates in September by noting that labour market risks have increased, while inflationary risks have declined. Acting now might help reduce any further deterioration in the labour market.
• Since the meeting, July’s labour market report showed a significant cooldown in hiring with the unemployment rate ticking higher. This sent equity markets into a tailspin on concerns that the US economy might be headed for a recession and perhaps the Fed waited too long to begin lowering interest rates. Global equity markets have since stabilized from that tumble in early August.
• The annual Jackson Hole Symposium began today. Fed Chair Jerome Powell is scheduled to give a speech on Friday after wrapping up the conference with other central bankers from around the world.

Signs point to the Fed getting closer to lowering interest rates for the first time since 2020 at the onset of the pandemic. Markets are currently expecting a September rate cut. The Fed has been treading carefully with economic conditions proving resilient, so the central bank did not want to act too quickly and restoke inflationary pressures.

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