Fed decision – 26/07 – this week's expected 25bps Fed rate hike looks set to be the last rate rise this year, whatever Fed policymakers would have you believe. We may hear officials try and make the case for at least one more between now and the end of the year but given recent trends around US inflation its quite likely that PPI will go negative in July.
It would be highly unlikely for the Fed to continue to hike rates against such a backdrop. Nonetheless the Fed will be keen to prevent the market pricing in rate cuts which was one of the key challenges earlier this year. As things stand markets are already pricing in the prospect that this will be the last rate rise in the current hiking cycle given recent declines in the US dollar and US yields. With the next Fed meeting coming in September the market will have to absorb two more inflation reports and two more jobs' reports.
With inflation slowing and the jobs market resilient the US economy is currently in a bit of a goldilocks moment. This will be the challenge for Powell this coming week, not forgetting off course that we will get fresh messaging at the end of August at the Jackson Hole annual symposium.
