July FOMC Rate Hold Certain, Market Eyes Possibility of September Cut

On July 30, SangSangIn Securities stated, "The July Federal Open Market Committee (FOMC), which will be held over two days starting today, is expected to keep the benchmark interest rate unchanged at the current level of 4.25-4.50%." The firm also projected, "The Federal Reserve's benchmark interest rate is expected to be 4.00% at the end of this year and 3.50% at the end of next year."

On this day, Shin Eol, a researcher at SangSangIn Securities, said, "The market's attention will be focused above all on whether there will be any dissenting opinions in favor of a Fed rate cut." He added, "At the previous FOMC statement and press conference, the stance for a unanimous hold was strongly emphasized," and presented this outlook.

Since the end of last month, Christopher Waller, a member of the Fed's Board of Governors, and Michelle Bowman, the Vice Chair, have raised the need for a rate cut at the July FOMC. However, the key point is the position of Jerome Powell, Chair of the Fed. Researcher Shin noted, "Chair Powell is still considered to be maintaining his stance on holding rates steady." He added, "There is also strong pressure from both the White House and the Republican Party for a rate cut. It is necessary to confirm the positions of Chair Powell and other members regarding the need for a rate cut, both domestically and internationally."

He further stated, "While the July meeting is likely to result in a hold, if there are any dissenting opinions in favor of a rate cut, the market's betting on a possible rate cut in September will increase, leading to greater downward pressure on interest rates." He continued, "If the decision is unanimous to hold, then Chair Powell's press conference will be the key focus. After that, whether the US-China trade negotiations make progress will become the most important driving factor."

Although the inflation situation is relatively well managed, perspectives differ depending on the stakeholder. Researcher Shin said, "Consumers, represented by households, are somewhat exposed to anxiety. Uncertainty regarding import prices and service prices due to tariff negotiations could negatively impact future inflation." He added, "The expected inflation rate one year from now has clearly risen, from 2.26% in October last year just before the US presidential election to 2.79% in July at present. Concerns about inflation remain persistent in the bond market."

He also commented, "Market fatigue is likely to accumulate further." He added, "The market's perception of the timing of a rate cut will change, and since this is the first meeting of the second half of the year, it is expected that the likelihood of a rate cut in September will gradually increase."