DB Financial Investment: US Fed May Delay Rate Cut Until December

There are projections that the US Federal Reserve (Fed) may postpone its policy rate cut until December.

AFP Yonhap News

Park Sungwoo, a researcher at DB Financial Investment, stated in a report on the 31st, "Voices cautioning against a rebound in goods inflation after July, including Chairman Jerome Powell, still represent the majority view within the Fed. Therefore, it is more likely that the rate cut will resume in December after confirming several more months of inflation data."

However, he also explained that expectations for a rate cut in September remain. He said, "Given the more dovish tone of the July monetary policy statement, weakening underlying demand in the US, and the limited scope of any inflation rebound after July, expectations for a September rate cut may also be largely maintained. The likelihood of a September rate cut is expected to be highly volatile depending on employment and inflation."

On the afternoon of the 30th (local time), the statement released by the Federal Open Market Committee (FOMC) took on a somewhat more dovish tone compared to previous statements. The phrase "economic activity has expanded robustly" was revised to "moderated" for the first half of the year, and "uncertainty has diminished" was changed to "uncertainty remains elevated." This is interpreted as a gesture to compromise with committee members advocating for a rate cut.

He analyzed, "Although the Fed kept the policy rate unchanged at 4.25-4.50%, it is the first time since 1993 that board members Christopher Waller and Michelle Bowman have advocated for a rate cut. This is a highly unusual event and shows a divergence of opinions within the Fed."

On the other hand, Chairman Powell dampened market expectations by continuing hawkish remarks, such as stating at the press conference that "the current rate level is appropriate." As a result, the probability of a rate cut in September, which had exceeded 60% in the interest rate futures market immediately after the policy statement, fell below 50% following the press conference.

Researcher Park also described the second quarter US economic growth rate as a temporary optical illusion. He diagnosed, "Although the second quarter US economic growth rate rebounded to an annualized 3.0%, this is a temporary illusion caused by trade volatility. Underlying demand has actually entered a phase of slowdown."

He added, "Private consumption rebounded slightly in the second quarter, but the pace slowed compared to 2024. In particular, the consumption capacity of low-income groups has weakened, so the rebound in consumption will be limited."