30-31 July 2024 Fed Meeting: What to Expect

The Federal Reserve’s monetary policy meeting, one of the most anticipated market and economic events, is here. 

Traders will closely monitor the results to see how they might influence the financial markets and the landscape of the world’s largest economy. 

The FOMC meeting takes place today, Tuesday, 30 July, and tomorrow, Wednesday, 31 July, and the outcomes will determine if the central bank will meet expectations of rate cuts. 

Moreover, in addition to the central bank decision, US traders, consumers, and analysts may want to monitor this week’s labour market data for further insights. 

Let's take a closer look at this week’s US economic and market events and what to expect from each of them.

The Fed’s Latest Rate Decisions

Before we delve into this week’s rate decision, let’s review the Fed’s recent rate decisions to understand their impact on the economy and their potential effects on the US’ monetary path.

Interestingly, since the beginning of 2024, the Fed has maintained rates unchanged at 5.25%- 5.5% in its January, March, May, and June meetings. These decisions come against the backdrop of widely expected rate cuts.

In its latest meeting on 11-12 June, despite a drop in inflation, Fed Chair Jerome Powell stated that the central bank is still being prepared to cut rates, pointing out that there will be fewer rate cuts than initially expected. Powell attributed this cautious approach to the fact that the labour market “needs to come back into better balance” to ensure that inflation stays in its ideal target range. Furthermore, Powell said the Fed “can wait a few more months until inflation falls further.”

Still, Powell noted that the Fed’s “restrictive” policy may be effective, but policymakers will need to see more “sufficient progress” before they change this stance.

This time, the question is whether the Fed will take a different approach or maintain its rates unchanged for the foreseeable future.

Latest Inflation Figures & Upcoming Labour Data

Inflation is a key factor that the Fed considers when deciding on rates. As such, understanding the latest inflation data may help predict the Fed's decision in its July meeting.

Recent inflation figures released on Friday, July 26, show that June’s inflation rates may have moderated from the previous year, and the overall inflation data met expectations. 

According to market experts like Kim Forrest, "the data is in line with expectations," and "we are likely on the path for a rate cut, most probably in September." Other experts like David Albrycht stated that this is the result of a "higher for longer" policy, "inflation is cooling," and "monetary policy is working."

Beyond the recent inflation figures, the Fed may also consider the upcoming nonfarm payrolls (NFPs) report on Friday, 2 August. Although the actual data results are yet to be seen, analysts expect an addition of 177,000 jobs in July, below May’s 206,000 jobs. Furthermore, the unemployment rate is expected to remain steady at a high of 4.1%.

What Do Analysts Expect from the Fed Meeting?

Despite the improvement in inflation rates, the Fed is expected to keep benchmark short-term rates unchanged at 5.25%- 5.5%. If these expectations materialise, rates would hit a two-decade high. 

This may be because there are signs of the economy weakening and slowing more than expected amidst a “frozen housing market” and lower-income consumers as “some weaker parts of the economy are slowing down, even though there is still strength in other parts.”

Given the conflicting nature of the US economy, many may wonder why the Fed is not cutting rates immediately. The answer seems that the Fed is still not confident enough in the economy's trajectory, and they want to get their decision “right” and not rush into it.

How Are the Markets Reacting?

The markets started this eventful trading week with a drop in gold (XAU) prices as the dollar traded higher. Wall Street indices, on the other hand, were flat. The Nasdaq (US-TECH 100) slightly rose above the flatline, and the S&P 500 gained about 0.1%.

In addition to the Fed meeting, several factors could potentially impact the financial markets in the coming days. These include Q2 earnings releases from top tech companies and major corporations, US-SINO tensions, the US elections, and geopolitical tensions in the Middle East. Traders should stay informed about any significant news and economic events to anticipate potential market shifts. (Source: Yahoo Finance)

Conclusion

The upcoming Federal Reserve meeting is expected to affect the markets and the economy significantly. Despite expectations of rate cuts this year, the Fed is widely projected to maintain rates unchanged at a record high. However, these are just projections; only time will tell what this major central bank will decide.