FOMC cut rates by 25bp and stopped shrinking its balance sheet 2 months earlier than scheduled. The market was hoping for more cuts and more clarity in the policy path going forward from Chair Powell and received neither.

It is well recognized that the U.S. economy continues to expand at a healthy rate; job growth continues; wages are improving; consumers are spending; and inflation is getting close to the 2% target. But current trade frictions exacerbate the slowing global economy, as evidenced by a declining manufacturing output globally.

Regardless if one thinks the growth glass is half full or half empty, it is difficult to justify that a one-and-done 25bp cut would sway the economy. Powell tortuously tried to explain how this 25bp cut is consistent with the policy path since January – HiPPPi – from 2018 Hike, to January Patient and Pause, and the June Pivot. This 25bp cut is a policy extension. This is insurance to keep the economy from faltering.

At the same time, Powell is non-committal to any future rate cuts and rejects the notion that this is the beginning of a rate cut cycle. He tell us this as a mid-cycle rate adjustment. The problem is that we are at late-cycle. The market continues to price in another cut in September.

Here is the language change between June and July press release.