FED’s Critical Interest Rate Meeting Begins – Here are the Latest Data and Expectations Ahead of Tomorrow’s Decision

The two-day meeting where the FED will hold behind closed doors and make the interest rate decision has now started.

The decision will be shared with the world tomorrow at 21:00 Turkey time (UTC +3) and half an hour later, FED President Jerome Powell will give a speech.

There is a strong expectation that Wednesday's interest rate decision will be in the direction of “keeping interest rates constant”.

So what are the latest situation and expectations?

For nearly a year, FED policymakers have consistently stated during their meetings that there will be no immediate changes to the benchmark interest rate. However, this may be the last period in which the stance on this issue remains unchanged.

As the Federal Open Market Committee (FOMC) prepares for its July meeting, attention is already turning to the upcoming September session. Investors are expecting at least a 25 basis point cut in the federal interest rate, which currently stands at 5.25%-5.50% in September. According to the CME FedWatch tool, the probability of a 25 basis point cut is 87.7%, while the probability of a 50 basis point cut is 11.9%.

Market expectations suggest there is a more than 50% chance that the federal interest rate target range will fall to 4.50%-4.75% by the end of the year.

Evercore ISI's Krishna Guha noted that the Fed's management is carefully preparing to justify a rate cut and build internal consensus for future adjustments. Guha thinks that FED Chairman Jerome Powell will avoid giving a clear signal of an interest rate cut in September at his post-decision press conference on Wednesday. “We believe Powell will wait until Jackson Hole in late August to give a clear signal on a September rate cut, by which time the Fed will have an additional month of data,” Guha wrote.

Bank of America economist Michael Gapen emphasized in a recent note that markets are pricing in about 2.5 interest rate cuts for the year, but the FED may not need to cut rates in September. “The interesting question is whether they will step back. If there is any step back, we expect it to be moderate,” he said.

SA Analyst Damir Tokic warned that failure to signal a rate cut in September could lead to disappointment in the markets and exacerbate the ongoing sales in the stock market. Despite this, Tokic predicts that Powell will likely refrain from committing to a rate cut at his upcoming press conference, instead emphasizing the Fed's confidence in the data.

*This is not investment advice.