Fed Debate Shifts From Large Cut to Whether to Cut at All

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I like to write and also like to read. I just got an idea from CNBC video first what to search, and then follow up with 5 minutes reading.

The Federal Reserve’s debate shifted from how much to cut interest rates later this month to whether to move at all after hiring in June trumped the expectations of economists.

Yields on two-year U.S. Treasuries jumped to 1.87% from 1.76% the day before, reflecting reduced odds of the Fed aggressively reducing borrowing costs in the near term. Fed funds futures, which had been indicating some possibility of a half-point rate cut in July before the Labor Department’s data, are now pricing a quarter-point reduction this month, and at one point on Friday even showed that outcome was less than 100% certain.

Fed Chairman Jerome Powell, who has said uncertainties in the U.S. outlook could call for lower rates, will give his read on the job market next week in two days of semiannual testimony before Congress. The Federal Open Market Committee on July 30-31 will discuss whether the economy needs an “insurance cut” amid a slowing global economy, trade frictions and low inflation.

Officials will also take pains to stress that they’re not responding to political pressure. Despite what he termed “great jobs numbers,” President Donald Trump on Friday repeated his call for the Fed to cut interest rates, saying it would make growth “be like a rocket ship.”

“It is going to be a pretty well-debated meeting,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who said a half-point cut is now off the table. “I think ultimately they ease because they signaled it so strongly. It is an insurance ease. The cost of such of an ease isn’t high because inflation doesn’t present any kind of near-term risk.”

“We continue to see rate cuts as the most likely outcome,’’ with 60% odds of a July quarter-point cut, 15% odds of a half-point reduction, and 25% odds of no policy change.