After the latest labor market report, the Fed is once again focusing more on the second of the two mandates it aims to fulfill. After all, it has recently emphasized that the balance between the two mandates, full employment and inflation, is now more even. After months of focusing on inflation, the data series par excellence, FOMC members are now focusing more on the labor market, notes Commerzbank FX analyst Antje Praefcke.
Quick cuts at every meeting until the end of the year
“However, the fact that price data remains a strong market driver was impressively demonstrated yesterday afternoon when US inflation data for July came in slightly below market expectations. The market felt vindicated and reacted immediately and unequivocally: the dollar fell and interest rate expectations remained at 100 basis points through the end of the year.”
“These figures set the stage for the start of the Fed’s rate-cutting cycle in September. The analysis shows that the monthly rate of change in the consumer price index excluding food and energy was below 0.2% for the third consecutive time. A monthly increase in the consumer price index of 0.2% is roughly consistent with the Fed’s goal of a 2% annual inflation rate based on its preferred price index, the deflator. PCE.”
“The Fed will not be in crisis mode and just because inflation is moving permanently and definitively toward target, will it cut the key interest rate by 50 basis points in September. Rather, I believe in rapid cuts, possibly at every meeting through the end of the year. For this to happen, the August labor market report would have to disappoint massively and literally show a drop in employment. Beads of sweat could then appear on the foreheads of FOMC members.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
