Wait and See

Yesterday evening saw the release of the Fed’s minutes from their June meeting, where policy makers held rates at the 5.25-5.5% target range for the seventh consecutive time. Here, the minutes underlined how policy makers want to see more conclusive evidence that inflation is falling before loosening monetary policy from its tightest level in 23 years.

The minutes stated that policy makers “did not expect that it would be appropriate to lower the target range for the federal funds rate until additional information had emerged to give them greater confidence that inflation was moving sustainably toward.”

Such sentiments therefore reiterated the Fed’s “wait and see” approach.

At the time of the June FOMC, the latest PCE figures showed inflation stood at 2.7% (over April), unchanged from March’s level, but crucially above December, January, and February’s level of 2.6%, 2.5% and 2.5%, respectively.

Given concerns over a rise in inflation (which nonetheless eased to 2.6% during May), the minutes stated that “several participants observed that, were inflation to persist at an elevated level or to increase further, the target range for the federal funds rate might need to be raised”.

That said, the minutes cited how “with the labour market normalizing, a further weakening of demand may now generate a larger unemployment response” which could thus lower demand side pressures on the labour market and thus easing inflationary pressure across the wider economy.

Attention now turns to the release of US labour market figures on Friday, as markets seek further insight into the heath of the US labour market.

The minutes from the meeting accompany the dot plot from the June meeting which indicated that policy makers were forecasting just one cut this year – down from the three cuts projected during their March meeting. Since markets were pointing towards six rate cuts over 2024 at the start to the year, the downward revision of market expectations of rate cuts has underpinned much of this years’ headlines vis-à-vis monetary policy.

Data from the Swiss Federal Statistical Office this morning indicated that headline inflation eased to 1.3% over the course of June. This came in 10bps softer-than-expected and marked the lowest point since March, when inflation fell to 1%.

The fall in inflation will come as a welcomed sign to policy makers, given recent monetary policy.

Alongside the interest rate decision, the SNB forecasted that will ease to an average of 1.3% in 2024, 1.1% in 2025, and 1.0% in 2026.

Last month, the Swiss National Bank voted to cut their benchmark policy rate by a further 25bps to 1.25%. The SNB’s decision marked their second 25bps cut this year, and the first major central bank to have conducted two cuts.

President Volodymyr Zelenskyy has called on Presidential hopeful Donald Trump to lay out his plans to end the war in Ukraine. Trump has repeatedly made outlandish comments over his perceived ability to bring about an end to the conflict, without making any clear indication over how he would do so.

Speaking to Bloomberg, Zelenskyy said that “If Trump knows how to finish this war, he should tell us today”. The Ukrainian leader went further to say that “If there are risks to Ukrainian independence, if we lose statehood – we want to be ready for this, we want to know.”

Trump has been critical over the amount of spending that the US has put towards the Ukrainian war effort and his comments have concerned many in Kyiv that a potential Trump presidency could hinder funding and the flow of resources.

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