Federal Reserve’s Upcoming Rate Cuts

Fed Chairman Jerome Powell is expected to make a case for initiating rate cuts starting in September during the annual central bank symposium in Jackson Hole, Wyoming, next week. However, he is likely to emphasize that any cuts would be “orderly” and downplay the possibility of a 50 basis point cut.

Economists at UBS predict that Powell will advocate for a gradual withdrawal of monetary policy restrictiveness in his speech on Friday, August 23. They suggest that this would entail 25 basis point cuts rather than larger reductions.

They anticipate three such cuts this year—one each in September, November, and December—indicating a consensus among Federal Open Market Committee (FOMC) members regarding the current restrictive nature of Fed policy amid declining growth.

Powell is expected to argue for a slightly more aggressive easing of monetary policy than previously indicated. However, he will likely remain data-dependent and maintain that ongoing rate cuts will rely on inflation progress toward 2% and the stability of the labor market.

Despite a weaker July nonfarm payrolls report signaling a potential recession, analysts suggest that slower but existent GDP growth mitigates the immediate need for aggressive intervention.

Morgan Stanley echoes this sentiment, asserting that the rise in unemployment shouldn’t be as concerning this cycle due to relatively strong labor demand. They note that the current unemployment rate rise is less indicative of an impending downturn compared to past economic cycles.

While the Fed may pause to evaluate its strategy further, UBS feels “comfortable” projecting that headline PCE inflation will reach 2.0% and core inflation will hit 2.1% by the second quarter of the following year, allowing for continued rate cuts into next year. They suggest that successive cuts would allow the FOMC to align more closely with a systematic policy approach, potentially leading to further cuts in 2025 if growth continues to slow.