Markets are awaiting the release of the minutes of the US Federal Reserve meeting, which may show support for a rate cut among Federal Reserve officials, as investors will try to search for details of policymakers’ discussions, especially since the interest statement made it clear that the bank is aware of the risks related to its dual mandate (inflation and the labor market), and this is a change from the June statement, in which it said that it is very attentive to inflation risks.
Although the US Federal Reserve reiterated that it does not expect that it would be appropriate to cut rates until it gains greater confidence that inflation is moving sustainably towards 2%, Fed Chairman Jerome Powell’s remarks at the press conference almost confirmed the possibility of a rate cut in September.
Also, Powell stated that the US Federal Reserve is close to the point of cutting interest rates, and that a rate cut could be on the table in September. Moreover, Powell noted that there was a real discussion on the issue of rate cuts at the July meeting.
Two days after the release of the US Federal Reserve’s monetary policy decisions, the employment report showed a further slowdown in the labor market in July, with US nonfarm payrolls rising by 114K in July, and the June reading revised to 179K. In addition, the unemployment rate rose to 4.3% from 4.1%.
Powell’s cautious remarks and weak jobs report have allowed markets to price a 25 basis point rate cut in September, according to the CME FedWatch Tool, the probability of a 50 basis point rate cut was nearly 50% earlier in August.
But as concerns about the U.S. economic slowdown slowed due to positive retail sales data in July and weekly jobless claims data, the odds of a rate cut fell significantly to around 25%.
The results of the US Federal Reserve meeting are due at 18:00 GMT on Wednesday, and investors will examine discussions surrounding interest rate cuts and the economic outlook.
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Meeting outcome scenarios are:
First scenario: If the minutes show that the members of the US Federal Reserve who called for a rate cut in July also expressed their willingness to cut another in September, investors may start pricing in a significant rate cut in September, and this scenario, the immediate market reaction may cause the US dollar (USD) to weaken against its main rivals, and the dollar will continue to weaken, especially if the results show that officials are now more concerned about the negative impact of hawkish policy on the economy. and the labor market instead of inflation.
Second scenario: The US dollar may gain some strength, if the results of the US Federal Reserve meeting reveal that members who favored a rate cut in July wanted not to cut the interest rate to have more time to evaluate the data received.
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