The Fed blackout kicks off on Friday at midnight and there is little chance of a rate surprise unless it's tipped by officials first. The main opportunity to do that comes today at a 12:30 pm ET appearance by Powell at the Economic Club of Washington.
Barring that, we will hear from a few officials. Key ones that could offer signals are Waller on Wednesday at 9:35 am ET, Daly at 6:05 pm on Thursday and Williams at 10:40 am ET.
Right now, the market is pricing in a 12% chance of a July cut following the CPI downside surprise. Goldman Sachs makes the case for going sooner rather than later:
Using the latest unemployment and inflation numbers, we estimate that the median of the Fed staff's monetary policy rules now implies a funds rate of 4%, well below the actual rate of 5¼-5½%. Based on this observation, the encouraging June CPI, and Chair Powell's congressional testimony last week, we expect adjustment cuts to start soon. Markets are almost fully priced for a cut at the September 17-18 FOMC meeting, which remains our baseline forecast. But we see a solid rationale for cutting as early as the July 30-31 meeting. First, if the case for a cut is clear, why wait another seven weeks before delivering it? Second, monthly inflation is volatile and there is always a risk of a temporary reacceleration, which could make a September cut awkward to explain. Starting in July would sidestep that risk. Third, the FOMC has an undeniable (if never acknowledged) incentive to avoid initiating cuts in the last two months of a presidential election campaign. This doesn't mean the committee couldn't cut in September, but it does mean that July would be preferable.
As for September, there are now 28 bps in easing priced in, or a more than 100% chance of a 25 bps cut.
For year-end, the pricing is 67.9 bps or two full cuts and a 70% chance of a third.
Looking further out, a year from now the market is pricing in 147 bps in cuts, which would put the Fed funds rate in the 3.75%-4.00% range.
