FED: September Cut In The Balance (1/2)

Double-Dissent, Weaker Growth Leaned Dovish: The first sign of a possible dovish turn coming out of the July FOMC meeting was a double dissent in favor of a 25bp rate cut by Governors Bowman and Waller, which - while widely expected - confirmed that there is a growing contingent of activist rate cut supporters.

• And the Statement somewhat unexpectedly acknowledged slowing economic growth in contrast to the previous "solid" description. This appeared to be laying the groundwork for a potential "live" September meeting.
• "But", he added, "it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed.”
• He spent much of the press conference emphasizing the FOMC’s focus on inflation running above-target. He said that he would characterize current policy as "modestly restrictive". and that “it seems to me and to almost the whole committee that the economy is not performing as [though] a restrictive policy is holding it back inappropriately, and modestly restrictive policy seems appropriate... the majority view was still what it has been, which is that inflation is running above target, maximum employment is right at target… When we have risks to both goals, one of them is farther away from goal than the other and that's inflation.  Maximum employment at goal. That means policy should be tight because tight policy is what brings inflation down."
• Indeed he repeated multiple variations of the theme: "even if you look through the tariff effects, we think it's still a bit above target", while "the labor market looks solid".
• Asked about Gov Waller’s claim that the labor market is “on the edge”, Powell said “I think if you take the totality of the labor market data, you have got a solid labor market. But I think you have to see that there are downside risks.” 

September Cut In The Balance: Overall, Powell said it's "really hard to say" whether there will be enough information to cut in September. Asked about the what the Fed is looking for in the data:

• "If you saw that the risks to the two goals were moving into balance, if they were fully in balance, that would imply that you should move toward a more neutral stance on policy. This is the special situation we are in, which is, we have two-sided risks... As the two targets get back into balance, you would think you would move it in a way closer to neutral and the next steps that we take are likely to be in that direction. What will it take? It will be the totality of the evidence. As I mentioned, there's quite a lot of data coming in which before the next meeting, will it be dispositive of that? You know, it's really hard to say. We don't make those decisions right now. So, we will have to see."
• "This is an intermeeting period where we will get two full rounds of employment and inflation data before the time of the September meeting. We have made no decisions about September. We don't do that in advance."
• While it’s a different situation this year, compare Powell's responses at this press conference with July 2024, when the FOMC held rates but ended up cutting 50bp in September. Both times he emphasized that the FOMC hadn't decided on future meetings, and that it would come down to the "totality" of the data, but last year he explicitly said "a reduction in our policy rate could be on the table as soon as the next meeting in September…the broad sense of the Committee is that the economy is moving closer to the point at which it will be appropriate to reduce our policy rate.”
• The divide on the Committee this time amid significant uncertainty appears to be too great to make any pre-commitment.