Federal Reserve Signals Rate Cut in September Likely, Deutsche Bank Economists Say
Recent statements by Federal Reserve officials have indicated that a rate cut in September is highly probable, with the magnitude of the reduction still uncertain and dependent on data, according to economists at Deutsche Bank. They anticipate that the size of the rate cut at the upcoming September meeting will be mainly influenced by labor market data. The bank's current outlook suggests that the Fed will lower rates by 25 basis points at each remaining meeting this year, followed by a pause until the third quarter to gradually bring rates back down to a neutral level.
Fed Chair Jerome Powell hinted at potential rate cuts in his speech at the Jackson Hole conference last Friday, without specifying the timing or extent of the cuts. He emphasized the need for policy adjustment, stating that the direction of travel is clear and that the pace of rate cuts will be determined by incoming data and the evolving outlook.
While market participants awaited insights into future monetary policy direction, Powell focused on the factors that drove inflation surge during his speech, which led to multiple rate hikes in previous years. He recognized the progress in reducing inflation and highlighted the Fed's commitment to maintaining full employment, in addition to addressing inflation.
Powell's speech coincides with the gradual return of the inflation rate to the Fed's 2% target, with the latest inflation gauge at 2.5%. Unemployment has also risen slightly to 4.3%, but Powell attributed this increase to more people entering the workforce and slower hiring, rather than indicating a deteriorating labor market.
In conclusion, the Federal Reserve's indication of a potential rate cut in September reflects its focus on supporting economic growth and achieving its dual mandate of full employment and stable inflation. Investors should monitor upcoming data releases and Fed statements for further insights into the future direction of monetary policy, which could impact financial markets and investment decisions.