As expected, the Federal Open Market Committee keep the benchmark rate in a target range of 2.25% to 2.5%. Even though CME’s FedWatch tool predicts that the chances of a rate cut in July are extremely high, the latest Fed’s dot plot shows another story (see Figure 1).Only eight officials expect to cut interest rates this year, and the first rate cuts will happen in 2020
Figure 1: The latest Fed’s dot plot
Source: The Federal Reserve
Dropping the word “patient”
Since the financial crisis, the Fed has raised interest rates nine times. However, as the trade war heats up, the global economy slows down. The Fed acknowledged that inflation is below the Fed’s target level of 2% and lowered its inflation forecast to 1.5% this year. In the Fed’s minutes, it drops the word “patient” and uses “closely monitor” instead. The market believes it means the Fed opens the door for a rate cut in the future.
Rate cut or not: everyone will know the answer in July
Investors and US President Trump hope that the US Federal Reserve will give interest rate cuts as soon as possible. However, the Fed will only focus unemployment and inflation data, rather than other financial data. The next FOMC meetings will be held at the end of July. Let’s see if the Fed will bring good news to the market.