HSBC with an early preview of the July 31 FOMC decision

HSBC with an early preview of the July 31 FOMC decision

The FOMC decision exactly two weeks away and speculation about what's coming is already a market preoccupation.

The debate centers around a 50 basis point cut or 25 bps. The market continues to put a a 28% chance of a larger cut, that's down about 5 percentage points since this week's strong retail sales data.

"We believe that a 25bp rate reduction is more likely than a 50bp cut all at once," writes HSBC in a preview.

They see a follow-up cut in September and then the FOMC heading to the sidelines throughout 2020, in part due to slowly-rising PCE inflation in the months ahead.

The risks mainly surround trade and Brexit with the FOMC likely to keep its options open and undefined after the July 31 decision.

"We don't expect the statement to send any clear new signals about the timing or magnitude of additional easing going forward. Most of the language changes that were adopted in the June statement may simply be retained," HSBC writes.

One data point to watch in the run-up to the decision is the July 26 first look at Q2 GDP. They say it won't have a bearing on the next decision but will impact the path going forward. That report will also contain benchmark revisions dating back to 2014.

Another important input will come the day before the decision with the June PCE report. They see a reversal in apparel and portfolio management fees lifting the y/y rate to 1.7%.