DXY on the rise

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While the Fed left rates unchanged, both the FOMC statement and Chairman Powell's press conference strongly suggested that the first rate cut was likely at the next meeting in September. The statement shifted the Fed's focus from a tilt toward higher inflation to a focus on both inflation and employment risks. He followed that up with repeated references to concerns that the welcome cooling in labor market conditions could go too far, threatening the full employment goal. The chairman also admitted that "some" members of the Committee had considered cutting rates at the last meeting, although all voted to keep rates unchanged. At one point, Chairman Powell admitted that a September rate cut was "on the table" although he dismissed suggestions that a 50bp cut was being considered. With the timing and magnitude of the first rate cut now well in hand, the harder question will be how quickly it will cut rates. The chairman couldn’t answer that question directly, of course, but his response to a related question suggested that the pace of labor market cooling was central to the issue. JPMorgan forecasts the first rate cut in September, followed by quarterly cuts, possibly monthly if unemployment continues to worsen.