CMLI readers should begin formulating plans for a possible September rate cut, says Ken Kim, KPMG’s senior economist. Looking further ahead, “the yield curve will steepen once it becomes clearer that additional rate cuts will be forthcoming after September.”
KPMG’s view, and the consensus view on Wall Street, is that there will be a 25 bps reduction to the Fed’s key interest rates in September and again in December, he tells CLMI. Though, he adds, some think there may also be cuts in November.
Kim thinks a cut in November is unlikely because he expects that month’s Fed meeting will be skipped due to its proximity to the US Presidential election. Chairman Jerome Powell stressed politics play no role in the Fed’s decision-making.
Powell reminded reporters that this is his fourth election cycle. The election itself has never factored into the Fed’s decision making. There are the transcripts of the FOMC meetings to back him up on that claim. Staying on the sidelines at the November meeting would further buttress that claim.
What will drive the Fed’s upcoming policy decisions? Look at the “totality” of both inflation and the jobs data over the coming months, Kim says – stressing Powell’s words during a recent press conference.
“Before, the Fed was just worried about inflation, which was its predominant concern. Now, it is equally concerned about the labor market,” Kim says.
If there’s an uncontrolled rise in unemployment, that would suggest the Fed is behind the curve. To avoid that outcome, they’ll likely continue cutting rates in 2025 and 2026 to keep the US economic expansion continuing, he adds. A soft landing remains the goal.
KPMG’s more-detailed analysis on the Fed’s July meeting is available here.
