The Fed faces risk from multiple directions and is experiencing a high level of uncertainty. Our baseline scenario sees the hawks mostly unchanged and the doves to consolidate towards two cuts for 2025.
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If there’s one takeaway from this meeting, it’s that the Committee wants to position themselves much more cautiously on the inflation outlook, but the Fed is just a couple of bad labor market prints from having to put more cuts back on the table.
Now that rate normalization is about to move into the next, slower phase, it is important that they do not predetermine the scale of normalization.
We will be hoping for two things at the September meeting this week: a 50 bps cut and minimal upwards revisions to the unemployment rate projections in the Summary of Economic Projections (SEP).
