The Federal Reserve’s Open Market Committee meeting concluded Wednesday, leaving target interest rates unchanged, almost exactly a year after raising rates to their current level. In their statement and press conference, the committee acknowledged moderation of the labor market and the move higher in the unemployment rate. Chair Powell went beyond hinting when referring to rate cuts in September, stopping short of declaring it a sure thing. Futures markets quickly placed odds of a September 0.25% cut at 98%.
What difference will waiting until the next meeting make? Well, to be specific, two non-farm payroll reports and inflation data for both July and August. Two more months of data will provide an even more clear picture of where the economy is at come mid-September. Plenty of roars will be heard over the next month and a half, likely begging the Fed to cut interest rates before they are behind the curve, particularly if there is any weakness in economic or inflation data.
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Markets rallied strongly into the meeting, as tech stocks recovered from recent struggles despite a worse-than-expected report from Microsoft. Bond yields fell across the curve, with the 2-year (widely followed as a Fed tracker) and 10-year rates dropping nearly 0.08% to 4.26% and 4.05% respectively. As recently as a month ago, both interest rates were 0.30-0.50% higher.
Source: Factset 7.31.2024
Interestingly, a question came up towards the end of Powell’s press conference regarding a central bank digital currency. We’ve fielded questions on the topic before from clients and advisors. Powell had nothing constructive to say about developments in that space. Mentioning that they are always researching different methods payments around the globe, but that “In terms of a CBDC, there is really nothing going on… No one here has decided that it’s a good idea yet”
All eyes now turn to Friday’s jobs number and unemployment report for July. Expectations are for 175,000 jobs created and a steady 4.1% unemployment rate. Any tick higher in the unemployment rate and we will begin to hear rumblings related to the Sahm rule triggering. We believe the labor market is always important to watch, but that economic resilience continues.
For more content by Grant Engelbart, VP, Investment Strategist click here.
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