The Transcript Editor's Commentary

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-Scott

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It’s Time!

Jerome Powell spoke last week and confirmed that he believes that it’s time for the Fed to start lowering interest rates. Other Fed governors who spoke throughout the week echoed Powell’s comments, as did the minutes from the July FOMC meeting. This was not surprising but did officially mark a shift in communication.

It’s now very clear that the Fed intends to lower interest rates at its September meeting. From now until then investors will be watching economic data to discern the size of the cut. There has been discussion that the Fed could lower by 50 bps, but the base case is that they will lower by 25 bps.

Reading between the lines of Fed comments, it seems that the Fed still may be slightly more hawkishly tilted than markets would otherwise prefer. Jerome Powell and others continue to frame the move as one to a “less restrictive” stance and warn that inflation remains above target.

Hawkish tilt or not, monetary policy is getting easier and this is likely to provide a boost to securities prices in the near term at least, perhaps even reigniting a bull run. However, the medium to longer-term outlook will depend on whether the Fed can continue to cut rates, and that will be driven by inflation.

Is Inflation Extinguished?