US | Fed stays put as it tries to get the "timing right" for resuming cuts

Summary

A rate cut in September remains a possibility if the labor market proves to be "on the edge" and weakens sharply, but that seems unlikely at this point. For now, "we have a long way to go to really understand exactly how [the tariff-related inflationary effect] will be."

Key points

• Key points:
• The FOMC left rates unchanged at 4.25-4.50%, as widely anticipated, amid unsurprising dissenting votes from Bowman and Waller, who favored a 25bp rate cut.
• The policy statement included a downgrade to the assessment of growth after Q2 GDP data showed fundamental momentum "moderated in the first half of the year."
• But the reassertion of still "elevated" uncertainty likely aimed to temper any market perception of a meaningful dovish pivot by the FOMC majority.
• With inflation running above target and maximum employment right at target, Powell continued to defend a "modestly restrictive" policy stance.
• We stick to our forecast that the Fed will wait until December to resume rate cuts and begin guiding the fed funds rate toward a more neutral level.

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