July FOMC: 25BP Rate Hike, More Hikes Possible

July FOMC: 25BP Rate Hike, More Hikes Possible

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Despite inflation consistently moving in the right direction in nearly every category, and at a faster rate than most analysts have expected month after month, the Fed opted to raise rates by 25 basis points once again at the July FOMC. Prior to the rate decision, JPMorgan’s David Kelly referred to the Fed’s actions as a sort of “jenga” game that it’s playing with the economy.

After indicating a 25 basis points, the Fed included a somewhat hawkish phrasing of their next steps, indicating that the Fed will determine “the extent of policy firming that may be appropriate” rather than “whether more policy firming may be appropriate.” Regardless, stocks have remained flat since the initial release of the decision, which is unlike almost any of the other Fed reactions we’ve seen this far.

In his follow up press conference, Powell did take somewhat of a dovish tone, leading some Wall Street analysts to believe that barring any major inflationary upsets, the Fed is likely done hiking rates from here. Here are the bullet points from the FOMC:

FOMC: Voted 11-0 For Fed Funds Rate Action:

The Federal Open Market Committee (FOMC) unanimously voted in favor of the Fed Funds Rate action, indicating a consensus among its members on the decision.

FOMC: Economic Activity Has Been Expanding At a Moderate Pace:

The FOMC observed that the overall economic activity has been growing at a moderate rate, suggesting a steady but not overly rapid expansion of the economy.

FOMC: Job Gains Have Been Robust in Recent Months, Unemployment Rate Has Remained Low:

The committee noted that the job market has shown strong gains in recent months, leading to a reduction in the unemployment rate, implying a healthy and vibrant labor market — that’s great for the economy and excellent for those hoping for a soft landing, but not necessarily what the Fed was hoping for.

FOMC Will “Continue to Assess Additional Information,” Implications for Monetary Policy:

As always, the FOMC expressed its commitment remaining data dependent, even though that’s not really what they did here, considering inflation has consistently fallen at a faster rate than most analysts were expecting, month after month. The Fed ultimately remained hawkish by referring to, “the extent of policy firming that may be appropriate” rather than “whether more policy firming may be appropriate” continuing to leave the possibility of future rate hikes on the table.

Synopsis

In the statement, the Fed unanimously voted for the Fed Funds Rate to rise 0.25 basis points, implying a unified stance on the decision. The FOMC observed that the overall economic activity has been expanding at a moderate pace, indicating a stable growth rate without significant fluctuations. Additionally, the committee noted the strength of the job market, with robust job gains in recent months, contributing to a low unemployment rate, which suggests a healthy employment situation, and a higher likelihood of a soft landing ahead.

However, despite the positive economic indicators, the FOMC remains “vigilant and committed” to continuously assessing additional information. This data-dependent approach implies that the committee will consider various economic data and indicators before making further policy decisions. The FOMC acknowledges that future actions will be contingent on the impact of previous tightening measures, such as interest rate hikes or asset purchase tapering, and how the economy and financial markets respond to these changes.

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