Before the Federal Reserve announced interest rates on Thursday, Wall Street expected the Federal Reserve to suggest a rate cut in September at this meeting. However, the Fed only issued the minimum level of rate cut in its FOMC statement on Thursday regarding the rate cut in September.

Analysts and strategists on Wall Street have different views and understandings on the Federal Reserve's unexpected hawkish statement. However, it is generally believed that this is the Fed's investor expectation management to have a larger operating space in the September rate decision.

UBS Group trader Leo He believes that the Federal Open Market Committee (FOMC) statement is undoubtedly more dovish than the statement in June, because the Fed changed its wording to focus on the two major tasks of inflation and employment, rather than just inflation.

The Federal Reserve kept interest rates unchanged. In the policy statement, the Fed changed its wording to 'The Committee is monitoring the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate. In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective.'

However, the Fed still insists that 'reducing interest rates is inappropriate until it is clear that inflation rates are sustainably moving towards 2%'.

This statement is undoubtedly more dovish than the statement in June, because the Fed says that it is now focusing on the two major tasks, but this is definitely not a complete turn to dovish stance.

LH Meyer/Monetary Policy Analytics economist Derek Tang pointed out that the Fed has a good grasp of the situation this time:

The Fed's statement this time is quite balanced and captures the easing of inflation and the real economy, and does not promote raising interest rates in November.

If no unexpected events occur, the rate cut in September should still be feasible. It's still difficult to see anything that can stop them from doing so.

BBH Global Market Strategy Director Win Thin said:

I think many people hope that the Fed's attitude can be relaxed, but the Fed has not shown any indications that it will cut interest rates in September. I think they will cut interest rates, but the dovish level of this FOMC statement is slightly lower than expected, which shows that the Fed is trying to cover its bases.

Ira Jersey, Chief Rate Strategy at Bloomberg Intel:

Overall, the Fed's statement seems to meet our expectations because it is balanced. The new wording 'risks from low inflation and employment' does not mean that a 25bp rate cut in September is imminent.

Neil Dutta, Chief Economist at Renaissance Macro:

The language used by the Fed at this meeting is very cautious and balanced, which also means that the Fed will have to make a more obvious change in wording in September. The minutes of the next meeting and the Jackson Hole central bank meeting in August will provide more information.

Morgan Stanley economist Ellen Zentner:

The FOMC statement shows that the characteristics of inflation and the labor market have undergone significant changes, and emphasized the risks of the dual tasks. The emphasis on the cooling of the labor market is an important shift towards a more balanced tone, and we believe that this has prepared the Fed for a rate cut in September.

Bloomberg economist Anna Wong pointed out that the Fed may want to consider more economic data before releasing a rate cut signal:

This policy statement contains very few red lines, but it conveys an important message to investors: Fed officials are not ready to cut interest rates in July, nor do they want to make investors believe that there will definitely be a 25bp cut in September, not to mention that the market has been expecting a 50bp cut in interest rate by the Federal Reserve recently.

The new statement retains the hawkish wording that 'the Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective'. However, by acknowledging the recent rise in the unemployment rate and adding that they are now also focusing on full employment, the FOMC has kept the hope of a rate cut in September alive.

We believe that the main reason they only gave a minimal suggestion for a rate cut is because there is still a lot of data to be released before the September FOMC meeting: two inflation and employment reports, and the data could see significant changes by then. When Powell speaks at Jackson Hole at the end of August, it may be the best time to clearly indicate a rate cut in September, since he would have an additional month of employment and inflation data.

Editor/ping