The Federal Open Market Committee (FOMC) raised the federal fund rate by 25bp but dropped future guidance. Chair Powell claimed that the Fed is far away from hitting its inflation target, but acknowledged that the tighter credit conditions for households and businesses could affect economic growth.
We believe that the Fed is setting the table for a conditional pause in monetary policy but we would advise caution regarding any near-term course reversal by the Fed, since the incoming economic data are not likely to support rate cuts.
- Fed action: On 26 July, the Federal Reserve (Fed) hiked the Fed Funds rate by 25bp to 5.25%-5.50%, a 22-year high. This hike was no surprise as it had previously been well-communicated by various Fed officials.
- FOMC statement: The only edit to the statement was that economic activity was expanding at a “moderate” vs. previously stated “modest” pace.
- Press conference: The tone was measured. Chair Powell did not commit to a future rate hike, but stressed the long way to go before the inflation target could be hit. He made clear that the Fed’s approach remains very data-dependent, with September a live meeting.
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