1. August 2024

The Fed is about to cut, as the labour market gets more attention.

In Kürze

Improvements in inflation and higher potential risks for the labour market are eventually leading the Fed to cut rates. Barring any very nasty surprises in the July and August price data releases, the September cut, which is already priced in by the market, is an almost done deal. The tone of the press releases clearly indicates the change in outlook and the shift in policy priorities (see below), with the unemployment mandate increasing in importance.

Highlights:

The first rate cut is only postponed, most likely to September. The Fed appears happy with the Q2 inflation progress and is shifting attention to the labour market outlook.
The FOMC sees the economy as broadly rebalancing amid solid demand growth, and a significant downturn of the labour market appears a tail risk. But the string of good inflation prints was not yet long enough for a July cut.
Fed’s mild dovishness contrasts with the hawkish tilt of the BoJ Japan, which raised the policy rate to 0.25% earlier than expected and despite mixed evidence on inflation. Further monetary tightening will come from the widely expected start in the reduction of asset purchases.

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The Fed is about to cut, as the labour market gets more attention

1. August 2024

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