Powell's Hawkish Message: Fed Rate Cuts Unlikely in September

Strategic Insights -

Federal Reserve Chair Jerome Powell recently indicated that the central bank is unlikely to resume its rate cuts in September, citing the need for more economic data. While the economy's course over the next six weeks will determine the Fed's next move, many forecasters and futures markets believe Powell's message suggests a "hawkish" stance, reducing the chances of a rate cut in September. This would mean that interest rates may remain relatively high for millions of Americans, affecting borrowing costs on auto loans, credit card balances, mortgages, and other debt. However, it would also mean higher bank savings rates for seniors and other people who depend on fixed income assets.

Key Takeaways:

  • The Federal Reserve is unlikely to resume its rate cuts in September, according to Fed Chair Jerome Powell.
  • Powell noted that the labor market is at the Fed's target of full employment, but inflation remains above the 2% goal, suggesting a "modestly restrictive" stance.
  • Forecasters believe Powell's message suggests a "hawkish" stance, reducing the chances of a rate cut in September.
  • The effects of tariffs on inflation could take a good bit more time to play out, according to Powell.
  • The Federal Reserve lowers rates to bolster a sagging economy and raises rates or keeps them higher longer to head off inflation.
  • Despite the Fed's higher-than-normal interest rates, "the economy is not performing as (if) restrictive policy is holding it back inappropriately," Powell said.
  • Powell noted that labor supply growth is also downshifting due to Trump's immigration crackdown, keeping the unemployment rate steady at a low level.

Statistics:

  • Unemployment rate: 4.1% (Fed's target of full employment)
  • Inflation rate: 2.7% (above the 2% goal)
  • Odds of a September rate cut: 45% (down from 65%) according to fed funds futures
  • Number of jobs reports and inflation reports to be released before the mid-September meeting: 2
  • Time period for which Powell said the economy's course will determine the Fed's next move: 6 weeks

Sources:

  • Paul Davidson, USA TODAY
  • Jerome Powell, Federal Reserve Chair
  • Michael Pearce, Oxford Economics
  • Samuel Tombs, Pantheon Macroeconomics
  • Michael Feroli, JP Morgan Chase