US | Summer brings "good data" to the Fed; enough for a strong dovish shift?

Summary

Following reassuring inflation data in the inter-meeting period, FOMC members likely regained some confidence in the disinflationary process. FOMC participants might be inclined to suggest a September rate cut, but a strong signal at Jackson Hole next month is more likely.

Key points

• Key points:
• Last week’s GDP figure is unlikely to prompt Fed members to revive concerns about risks to inflation, but it has most likely closed the door to a rate cut this week.
• The lack of surprises from the labor market suggests that it is increasingly close to having found a balance that the Fed will probably seek to avoid jeopardizing.
• The futures market is almost fully pricing in that the Fed will cut rates by 50 bps this year, and continue to anticipate roughly 100 bps worth of rate cuts next year.
• Fed officials have indeed turned more dovish with the disinflationary trend resuming in 2Q24 and the unemployment rate rising.
• The Fed will likely continue to pave the way for starting to ease policy in September hinting that cooling inflation and a softening job market could give grounds for a policy pivot soon.

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