Federal Reserve policymakers stated on Wednesday that, given the improved inflation trajectory in the United States and a more balanced labor market, the Fed is "closer" to cutting interest rates.

Three Federal Reserve decision-makers point to easing policy starting in September

Federal Reserve Governor Waller and New York Fed President Williams respectively pointed out in speeches and interviews that the relaxation of monetary policy is getting closer and closer. Richmond Fed President Barkin said he is "very encouraged" by the widening range of inflation decline and hopes to see this situation continue.

Federal Reserve policymakers have stated that price pressures seem to be easing across the board, with commodity prices falling, housing cost increases slowing down, wage growth becoming more moderate, and long-awaited easing in service sector price increases.

Williams and Waller seem to have ruled out the possibility of a rate cut at the Federal Reserve's policy meeting on July 30-31, with the market currently digesting a possibility of less than 5% at this meeting.

Waller listed September to December as a potential time period when conditions for interest rate cuts are ripe, and omitted July. He said that the market will learn a lot of information between July and September, and will receive two months of inflation data.

Karim Basta, Chief Economist of III Capital Management, wrote that the three decision-makers who spoke on Wednesday all pointed to policy easing starting in September.

Financial markets continued to bet on Wednesday that the Federal Reserve will cut interest rates again in November and December, lowering the target range for the benchmark policy rate to 4.50% -4.75% by the end of 2024.

Director Waller said that the Federal Reserve may achieve a soft landing

More Federal Reserve policy makers have expressed increasing confidence that inflation is firmly returning to the 2% track after higher than expected data earlier this year.

Although the inflation rate has clearly fallen from its high point two years ago, the progress is not stable, and the inflation rates of important categories are also uneven.

On Tuesday, Federal Reserve Governor Kugler stated that she sees goods, services, and now housing contributing to easing price pressures.

According to the favored indicators of the Federal Reserve, the inflation rate in May was 2.6%, lower than the peak of 7.1% reached during the pandemic. The June data will be released on July 26th.

Federal Reserve Chairman Powell also stated on Monday that the inflation readings in the second quarter of this year have to some extent increased "confidence in the downward path of inflation," suggesting that the start of a loose easing cycle may not be far away.

Waller said on Wednesday that the Federal Reserve is likely to achieve a soft landing, reducing inflation without triggering a painful economic recession and a sharp rise in unemployment. But Waller pointed out that the unemployment rate rose to 4.1% in June, and added that "the upward risk of unemployment rate is greater than what we have seen for a long time".

Based on the above news, multiple Federal Reserve officials believe that inflation in the United States is declining and closer to a rate cut. However, they seem to think that a rate cut in July is unlikely and will begin in September, which will become a potential medium - to long-term negative for the US dollar index. Investors need to remain vigilant about this.

Daily chart of the US dollar index