Congress has given the Federal Reserve a dual mandate to focus on “maximum employment” and “price stability.” In recent years, the focus has been on the latter due to high inflation rates. However, there are now signs that inflation is moving back towards the target of 2% and the labor market has softened. This suggests that the FOMC’s objectives are coming into balance.
While there may not be a consensus among FOMC members to cut rates at the upcoming meeting, there is a possibility that a rate cut could be signaled for the next meeting in September. The FOMC is likely to acknowledge improvements in inflation and show attentiveness to labor market risks in its post-meeting statement.
The real fed funds rate has been increasing as inflation has receded, leading to a passive tightening of monetary policy. This, along with the upcoming presidential election in November, does not seem to be influencing the FOMC’s decisions regarding monetary policy. The historical record shows that political considerations have not played a significant role in FOMC decisions.
Overall, there is a possibility of a rate cut in the near future as inflation returns to a more stable level and the labor market softens. The FOMC is expected to hold its policy rate at the upcoming meeting, but could signal a rate cut for the September meeting. The blackout period, during which FOMC members refrain from making public comments, is now in effect, and market participants are waiting for signals from policymakers regarding potential rate cuts.
While there is uncertainty surrounding the timing of rate cuts, the FOMC is expected to base its decisions on economic data rather than political considerations. The focus remains on achieving the dual mandate of maximum employment and price stability, with a potential rate cut on the horizon in the coming months.