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July 2024 Fed meeting: Rates remain steady for another month

August 01, 2024

The Federal Reserve held rates steady in July, but left the door open to a possible rate cut in September.

Key takeaways

After a historic run of higher interest rates, the Federal Reserve signaled in its July meeting that it is leaving the door open to start cutting rates in September.
Chairman Jerome Powell said “inflation has eased substantially” over the course of the year and that the Fed would be attentive to both sides of their dual mandate of maximum employment and stable prices.
Markets initially rose during Powell’s speech, though the rally faded toward the end of the day. At the market close, the Dow was up 0.24%, the S&P 500 was up 1.58%, and the tech-heavy Nasdaq was up 2.64%.

Contributors

Seth Carlson

Content Analyst, J.P. Morgan Wealth Management

The Federal Reserve announced at its July Federal Open Market Committee (FOMC) meeting that it will keep its benchmark interest rate unchanged at 5.25% to 5.5%. The FOMC statement said that “inflation has eased over the past year but remains somewhat elevated”.¹ The July statement differs from June’s statement in only one word – “somewhat” – but one word means a lot in Fed-speak.²

After a hot beginning to the year that dashed many market watchers’ hopes for a rate cut as soon as March, consumer prices have continued their glide path toward the Fed’s 2% goal. The Consumer Price Index (CPI) showed a decline of 0.1% on a seasonally adjusted basis in June, following an unchanged reading in May.³ The decline in CPI is a critical development for the FOMC, as it indicates that the price pressures facing consumers are easing, particularly in areas where inflation has been sticky: non-housing and housing services.

Ajene Oden, Global Investment Strategist for J.P. Morgan, remarked that there’s more work to be done on the road to eventual rate cuts.

“More confidence and more data remains the mantra for the Fed,” said Oden. “They are seeking greater confirmation on the path for inflation and the economy.”

Chairman Jerome Powell's speech after the release of the FOMC’s report put further emphasis on the committee’s shift from focusing primarily on inflation to balancing their focus between inflation and the effect higher rates have had on the job market.

“The Fed’s July statement highlighted an economy moving into better balance and an FOMC attentive to the risks associated with their dual mandate, rather than primarily focused on inflation risks,” Oden added. “This change shows the committee’s awareness of normalizing labor market data and the recent descent in inflation data trending toward their 2% goal.”

Since the committee’s last meeting six weeks ago, economic data have pointed to signs that the job market may be finally cooling off.⁴ One of the critical factors influencing the FOMC's decision to shift focus is the moderate increase in U.S. labor costs during the second quarter as private sector wages grew at the slowest pace in three and a half years.

Taking a glass-half-full approach to the labor market data, Powell noted that employment “has come into better balance” as nominal wage growth has eased and the labor market has returned to state it was in on the eve of the pandemic: strong, but not too hot. In addition to these data points, he reiterated that the U.S. economy is currently close to its 2019 state, which, in his words, was not an inflationary economy. The labor market is not a source of continued inflationary pressures.

At the same time, Powell also stressed that the committee would continue to take a holistic view of the economy as it made its interest rate decisions. In other words, the Fed will be “data-dependent but not data point dependent,” in making a decision on whether to make a rate cut in September or to continue the current holding pattern.

On a potential rate cut in September, Oden said, “Although Powell did not definitively proclaim if the Fed would cut rates, he did say that ‘the time is approaching.’”

References

Board of Governors of the Federal Reserve System, “Federal Reserve issues FOMC statement.” (July 31, 2024).

Board of Governors of the Federal Reserve System, “Federal Reserve issues FOMC statement.” (June 12, 2024).

Bureau of Labor Statistics, “Consumer Price Index Summary.” (July 11, 2024).

Council of Economic Advisors, “The June 2024 Employment Report.” (July, 2024).

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