Powell’s prepared remarks for his semiannual monetary policy testimony suggest that there is a very high probability of a 25-basis-point cut in July.
At the June FOMC meeting and in subsequent public remarks, FOMC participants signaled that they were inclined to make policy slightly more accommodative unless downside risks and uncertainties affecting the outlook were alleviated. Powell stated quite clearly in his prepared remarks that this has not happened.
Here is the key paragraph (bolding our emphasis):
In our June meeting statement, we indicated that, in light of increased uncertainties about the economic outlook and muted inflation pressures, we would closely monitor the implications of incoming information for the economic outlook and would act as appropriate to sustain the expansion. Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened. Since then, based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.
This leaves little room for interpretation. The market has seen a very high probability of a cut in July, and Powell’s testimony this week was an opportunity to push back gently against the idea that a July cut is already a foregone conclusion. After all, there are those FOMC participants who have stated publicly that they don’t think a cut in July is necessary. But Powell chose not to take that opportunity. A July cut is all but a done deal.
We will see what happens in the Q&A and provide an update on anything that could affect our views, but after seeing Powell’s prepared remarks our views seem unlikely to change based on that. The same goes for the minutes of the June FOMC meeting coming out later today. They’ll be interesting, but what matters most is policymakers’ assessment of what has happened since the June FOMC meeting. Powell’s prepared remarks suggest that they’ve already seen what they needed to see to cut in July.