Pi*, FRB-US, Dual Mandate. The July 2024 FOMC confirmed what discussed with you recently. The Fed is focused on pi* (which we estimate at 2.47%) rather than actual inflation. For this reason, no cut today, reinforced by the fact that growth remains solid (no negative demand shock yet, focus on PDFP). At the same time, the signal from FRB-US seems well taken: at this point the Fed can accept the risk of remaining a bit above target in order to save the labor market. The FOMC knows that the unemployment rate has increased as a result of a positive supply shock, but at this point it is getting very hard to hold further, given that pi* is not too much away from target.
Powell did not precommit, as expected. Technically, if pi* was the only focus, the baseline would be no cut in September (and possibly also in December). But again, the labor market is back and the rise in the unemployment rate cannot be dismissed, even if they know that so far it is entirely supply-driven. Overall, a small dovish step today.
Reminder: FRB-US currently suggests that the September SEP could be similar to the March SEP.
Statement
Pi*, FRB-US, Dual Mandate. The new statement is as expected, no surprises to our eyes. The FOMC implicitly says that what matters is not realized inflation but pi* (“some further progress”). It also confirms the signal from FRB-US (here the pre-FOMC run) discussed with many of you in London: at this point, it can be risky to ignore the other side of the mandate and the Fed can accept the risk of remaining a bit above the 2% target going forward.
Q&As
We generally review the most important Q&As of the press release in this section. Not today. The reason is pretty simple: all questions were not relevant and Powell, to us, said nothing new/relevant.