Goldman Sachs anticipates that recent trends in economic data will lead the FOMC to revise its statement in ways that suggest a rate cut in September is becoming more likely.
Key Points:
Acknowledgement of Unemployment:
- Expected Change: The statement may acknowledge the recent increase in the unemployment rate while continuing to note that it remains low.
Progress Toward Inflation Goal:
- Expected Change: The qualifier “modest” might be dropped, with the statement indicating that there has been “further progress” toward the 2% inflation goal. This aligns with Powell’s recent comments following the June CPI report.
Balance of Risks:
- Expected Change: The statement is likely to say that the risks to the Fed’s dual mandate “are in” better balance, rather than “have moved toward” better balance. This is a slightly softer version of Powell’s recent comments that risks are “in much better balance.”
Confidence in Inflation Outlook:
- Expected Change: The FOMC may state that it now needs only “somewhat” greater confidence in the inflation outlook to start lowering interest rates. This reflects Powell’s comment that recent data has added “somewhat” to confidence.
Conclusion:
Goldman Sachs expects these changes in the FOMC statement to hint that a rate cut in September has become more likely, with modifications acknowledging the unemployment rate, the progress toward the inflation goal, the balance of risks, and the required confidence in the inflation outlook.
For reference, here is the June FOMC statement.
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