Economists: Tonight, waiting for the Fed's signal to cut interest rates in September

According to Zhitong Finance, the Federal Reserve will announce its interest rate decision at 2:00 am Beijing time on Thursday, with Fed Chairman Powell holding a press conference 30 minutes later. Fed officials may hint at a rate cut in September tonight, bringing rates closer to a 20-year low, but they may not provide more details. A survey of economists shows that after the two-day policy meeting, the Fed is expected to keep the benchmark interest rate in the range of 5.25% to 5.5%, the peak reached a year ago.

Policymakers may acknowledge that inflation has made progress towards the 2% target after mild consumer price data in June, which is a prerequisite for a rate cut. With the rising unemployment rate, officials may suggest that policy should be eased as soon as possible.

Subadra Rajappa, head of US rate strategy at Societe Generale, said: "I think they will change the wording in the statement and suggest a rate cut at the September meeting." She cited recent comments from New York Fed President John Williams: "Williams said they are looking to get out of the restrictive area—so they can use that language too."

Interest Rate Decision

All economists surveyed by institutions expect no change in rates at this meeting. Policymakers may emphasize improved inflation prospects in the statement. The Federal Open Market Committee (FOMC) may say there has been "further progress" rather than "moderate" progress as in June. The FOMC is also expected to indicate that it has gained some additional confidence that the inflation rate is moving towards the 2% target, signaling that a rate cut is imminent.

Anna Wong, chief US economist at Bloomberg, said: "The market has fully priced in a rate cut in September, but a big question for the FOMC meeting on July 30-31 is: how clear a signal will the FOMC send? We believe the communication at the July meeting will only provide an initial hint of a rate cut in September, with Fed Chairman Powell pointing out that if data evolves as we expect, a rate cut is possible."

While investors see the likelihood of a rate cut this week at less than 5%, officials may at least discuss the possibility at the meeting. Many prominent figures, including former Fed Vice Chairman Alan Blinder, Goldman Sachs Chief Economist Jan Hatzius, and former New York Fed President William Dudley, have recently advocated for a rate hike in July.

Some economists say they will focus on whether Chicago Fed President Austan Goolsbee will become the first dissenting voter in over two years Jerome Powell may face questions from reporters about the outlook for the September meeting, as well as the pace of easing for the remainder of this year and next. While he may welcome recent good news on inflation, he is likely to revert to the Fed's standard language that its policy path is "data-dependent," with the Fed "time and time again" formulating action plans.

Powell is also expected to be asked about his level of concern regarding the cooling labor market and the conditions that would constitute a need to respond to "unexpected softness." The current U.S. unemployment rate stands at 4.1%, higher than the low of 3.4% in early 2023; July data will be released on Friday.

Currently, investors anticipate a rate cut in September slightly higher than 25 basis points, indicating they believe the rate cut could exceed the usual 25 basis points. According to futures, they also see the possibility of rate cuts in November and December. LH Meyer/Monetary Policy Analytics analyst Derek Tang said, "Powell may be asked how to meet the standard of 'unexpected weakness,' prompting a reassessment of whether a 25 basis point rate cut each quarter is sufficient."

While Powell may once again be asked about the November presidential election, he is almost certain to reiterate his standard position that the Fed's rate decisions will not be influenced by political factors