US Federal Reserve holds steady but signals September pivot more likely

The US Federal Reserve (the “Fed”) [link] elected to leave interest rates unchanged yesterday, but remarked through its chairman that the decision to pivot and apply the central bank’s first rate cut “could be on the table in the September meeting.” Fed Chairman Jerome Powell said that the US job market is in a “good place” and that he would “not like to see material further cooling to the job market”. Mr. Powell said that the Fed was on-trend for a “soft landing”, which is an outcome where inflation is brought back down into the 2% maximum band without triggering a recession.

MB bottom-line: The BSP meets on August 15 to decide on what will happen with our interest rates, but BSP Governor Eli Remolona recently said that a PH rate cut coming out of that meeting “is still a possibility”, but “will depend on the numbers.” Mr. Remolona said that the bank is still expecting to announce up to 50 basis points of interest rate reductions between the three remaining Monetary Board meetings left in FY24 (August, October, and December). What numbers are in focus with the BSP? Obviously inflation, but particularly the degree to which the lower rice tariffs will be able to moderate food inflation, and the Q2 GDP number that we’ll get next week. Will fixed-income finally get a little win, or will we be waiting yet another cycle for someone to make the first move?

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