Fed May Signal Rate Cut in September

Economists at Oxford Economics anticipate that the Federal Reserve (Fed) will use the upcoming meeting to hint at the possibility of a rate normalization step in September. This expectation is echoed by analysts from Banorte, Barclays, and Citibanamex, who predict no change in the Federal Open Market Committee's (FOMC) monetary stance in their fifth announcement of the year.

The FOMC is expected to maintain the interest rate at 5.25%, its highest level in 23 years, for the eighth consecutive meeting. Analysts believe the committee will subtly signal a potential rate cut in September, though the exact timing remains uncertain, as reported by El Economista. 

Experts at Oxford Economics forecast that the first rate cut will likely occur in September, based on overall economic data, including inflation and labor market rebalancing. Barclays' analysts also expect the committee to prepare the market for a rate cut by acknowledging progress on inflation. Citibanamex experts assert that there are no conditions for a rate cut in July, maintaining their prediction for September. Banorte analysts note that the current inflation trajectory is favorable enough for the FOMC to consider initiating rate cuts soon.

Recent economic indicators show that the US Consumer Price Index recorded an annual increase of 2.5% in June, slightly lower than May's 2.6%. However, the unemployment rate stands at 4.1%, the highest since 2021, which Powell has cited as evidence of no labor market overheating.

The upcoming meeting also coincides with the US presidential election campaign. Barclays experts recognize the risk of a gradual normalization cycle influenced by the election's outcome. Donald Trump, running for a second term, has indicated that he would allow Federal Reserve Chairman Jerome Powell to complete his term until 2028 and suggested that a rate cut before November might reignite inflation.

The announcement scheduled for Sep. 18-19 will occur during the presidential campaign. The November announcement will follow the election by two days.