(Reuters) -The Federal Reserve held rates of interest regular on Wednesday but opened the door to reducing borrowing costs as soon as its next meeting in September as inflation continues coming into line with the U.S. central bank’s 2% goal.
The central bank’s Federal Open Market Committee ended a two-day policy meeting by keeping its benchmark overnight rate of interest throughout the 5.25%-5.50% range.
Inflation, in keeping with the Fed’s statement, was now just “somewhat elevated,” a key downgrade from the assessment that it has used throughout much of its battle against rising prices that inflation was “elevated.”
MARKET REACTION:
STOCKS: The S&P 500 held a 1.59% gain
BONDS: The yield on benchmark U.S. 10-year notes ticked higher but was still down on the day at 4.122%. The 2-year note yield rose to 4.381%
FOREX: The dollar index pared a loss to -0.13% with the euro slipping from unchanged to -0.09%
COMMENTS:
TRAVIS KESHEMBERG, SENIOR PORTFOLIO MANAGER FOR THE SYSTEMATIC EDGE MULTI-ASSET TEAM, ALLSPRING GLOBAL INVESTMENTS, SAN FRANCISCO
“Our base case is for the Fed to make its first cut in September and remain neutral from a forward guidance perspective, analyzing incoming data to inform future rate-cut decisions. Growth and jobs are often not yet at a level that justifies a chronic cutting cycle and less-restrictive monetary policy. We expect to see conditions deteriorate and thereby support further rate cuts later throughout the fourth quarter of 2024.
“We proceed to favor bonds, which cash in on moderating growth and moderating inflation, particularly internationally. We also proceed to like equities. We expect broadening of the equity rally, and any relief from perceived looser monetary policy would likely support equity prices throughout the medium term.
“Geopolitical uncertainty throughout the U.S. has increased in July, and we expect the Fed will take this case into consideration in its decision-making.”
DON CALCAGNI, CHIEF INVESTMENT OFFICER, MERCER ADVISORS, DENVER, COLORADO
“It’s actually what the market expected which is one of the best thing for the Fed to do, to sit tight.”
“They aren’t telling you timing. What I’m seeing here is the Fed acknowledging that the risks are balancing … do you have to were going to make a case to cut rates, those are the data points you higher cite in an effort to administer market expectations.”
“The incontrovertible indisputable fact that they’re emphasizing that data of their communications, tells me that we’re closer to rate of interest cuts in the long term and the next meeting naturally may very well be September.”
“The market response is positive. The expectation coming into today was that the Fed goes to signal it’s closer to cutting rates. The Fed today delivered every part the market expected. There’s nothing here that in any way suggests the Fed delivered anything other than what the market expected.”
JEFFREY ROACH, CHIEF ECONOMIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA (in an email)
“The Fed used today’s statement to rearrange markets for upcoming rate cuts. As inflation rates improve and unemployment increases, the Fed can cut rates yet keep the nominal funds rate above the inflation rate. Markets will likely respond favorably to the subtle shift in tone.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“The Fed is tiptoeing towards being confident enough to cut. Adding that they’re attentive to the risks to either side of their dual mandate tees them as much as cut in September if the next two CPI reports are well-behaved.”
JAKE DOLLARHIDE, CEO, LONGBOW ASSET MANAGEMENT, TULSA, OKLAHOMA
“It was the worst kept secret on the planet that the Fed was not going to cut in July. The Fed goes to have its day throughout the sun in September with a 25 or 50 basis point cut, but I may not be surprised if that’s already priced into stocks. We may thoroughly see the market down significantly the day the Fed actually cuts rates in September.”
MICHELE RANERI, HEAD OF U.S. RESEARCH AND CONSULTING AT TRANSUNION IN CHICAGO (in an email )
“There continues to be positive indicators that this will likely be the last meeting before we see an rate of interest reduction at the next Fed meeting in September, with the potential of a second rate reduction for 2024 still on the table.
“Since it applies to consumer demand for credit around large purchases resembling homes and autos, it’ll likely begin to increase if, and when rates eventually begin to fall. Indeed, we’re even seeing some early indicators that buyers have gotten more considering latest mortgages. Until rates do drop meaningfully, nevertheless, consumers should proceed to utilize credit accurately and only to the extent that they know they are going to make their minimum monthly payments on.”
(Compiled by the Global Finance & Markets Breaking News team)