FED: less than 5% probability of a rate cut on July 30

1) The US labor market remains resilient according to the latest NFP report, which is good news for the macro-economic situation

The US labor market demonstrated its resilience last week, making a rate cut by the FED on Wednesday July 30 unlikely: the unemployment rate fell to 4.1% of the labor force, after several months of stability around 4.2%. This drop in unemployment suggests that, despite two years of monetary tightening and current macro-economic uncertainties, the US economy continues to show resilience in its ability to create jobs. This is good news for economic growth, but it delays the FED's next rate cut.

By clicking on the link below, you can reread our S&P 500 analysis proposed following the latest NFP report update last Thursday.

2) The probability of a rate cut on July 30 reduced to almost zero, barring any huge surprises between now and then on inflation, employment or trade diplomacy

Up until now, most investors were expecting an earlier decision, as early as July 30, at the next meeting of the Monetary Policy Committee. But cautious communication from Fed officials tempered these expectations. Jerome Powell and several governors reiterated that they would wait for “sustainable” evidence of a return of inflation to the 2% target before committing themselves. The fall in the unemployment rate to 4.1% introduces a nuance: it confirms that the economy is not contracting sharply, allowing the Fed to wait a few more weeks without taking the risk of slowing growth more than necessary. At the same time, the latest consumer confidence indicators and manufacturing activity data suggest a gentle slowdown, closer to a controlled landing than a halt.

Note that this week's Wednesday July 9 deadline for trade agreements will reveal more about the future impact of tariffs on inflation, and this will further alter the FED's monetary policy expectations. When these lines are written, the probability of a FED pivot on July 30 is less than 5%.


3) Here are the fundamental dates that will be decisive between now and the FED's monetary choice on Wednesday July 30

Wednesday July 9: the current deadline for trade diplomacy between the USA and its main trading partners. The final amount of tariffs will be decisive for US inflation expectations.

Tuesday July 15: US CPI inflation, the last major US inflation figure to be updated before the FED's monetary policy decision on July 30.

Initial and ongoing weekly US jobless claims are published on the Thursday of each week and will have an impact on the likelihood of the FED's action on July 30, but only marginally.
Barring exceptional events, it is therefore unlikely that the FED will resume cutting the federal funds rate on July 30.
The next PCE and NFP are due after the FED (July 31 and August 1) and will therefore have an impact on the FED's monetary policy decision on September 17.





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