The July FOMC meeting resulted in a 0.25% reduction in the federal funds rate, to a new range of 2.00-2.25%. The policy vote was far from unanimous, with eight members supporting the change, and the Fed presidents from Kansas City and Boston each dissenting. This reflects the varied commentary from members in recent weeks as to the necessity of the cut. This was the first rate cut since December 2008, when circumstances were obviously far different from those seen today.
The formal statement reflected the Fed’s newly-adopted dovish stance, notably the persistently muted inflation and ‘implications of global developments.’ The Fed also announced that it would end its balance sheet drawdown in August—two months before they’d planned. Other language was little changed from June, with economic activity noted as ‘moderate,’ and labor market as ‘strong,’ but inflation remaining low, and business fixed investment still ‘soft.’
This was a move largely expected by financial markets, although the magnitude of the move remained in doubt until recently, when fed funds futures odds pegged the smaller change at 80%. Current futures probabilities put the best odds at two additional cuts by December. Despite the change in tone this year, manifesting in today’s change, the primary Fed mandates remain somewhat conflicted: