The Fed Can't Give Markets the Certainty They Desire
The status quo is likely sufficient to result in another rate cut in September, but not sufficient for anything more.
Markets want some certainty. The Federal Reserve can’t give it.
Photographer: Spencer Platt/Getty Images North AmericaFederal Reserve Chairman Jerome Powell tried to thread the needle between dovish and hawkish at his Wednesday press conference, but realistically had no hope of pleasing market participants who thought a series of interest-rate cuts were already in the bag. The Fed just isn’t there yet. This reduction in rates was the insurance against bad outcomes. Going forward, conditions will need to worsen – and soon - to justify a further easing of monetary policy.
The outcome of the July Federal Open Market Committee was largely as I anticipated. The Fed reduced its target for the federal funds rate by 25 basis points in response to a weaker and riskier global environment in the context of little inflation pressure in the U.S. and they left open the possibility of future cuts. Still, the statement felt less dovish than the one in June, offering less of a guarantee to a rate cut at the next meeting in the third week of September.