With apologies to Bill Dudley, the Fed isn’t going to cut rates this week.

Dudley grabbed headlines a few days ago for insisting the Fed should start dialing back rates at the July FOMC meeting. He was pretty adamant about it. The labor market’s slowing and is anyway in better balance, inflation readings suggest price growth’s on its way back to target and, most importantly, Claudia Sahm’s eponymous recession indicator has all but triggered.

Meanwhile, the 2s10s has steepened rapidly and looks to be on the verge of dis-inverting. Remember: When it comes to the curve, it’s not the inversion you should fear, but rather the re-steeping.

Writing in early June on what counts as the longest US curve inversion in a century, BofA’s Michael Hartnett wasn’t prepared to disavow Cam Harvey. “History says lags are simply lags,” Hartnett said, adding that the curve can “turn steep quick” at inflection points. The re-steepening observed over the last several weeks was indeed “quick.”

The front-end’s rallied ~60bps since late May, bull steepening the curve by ~20bps over that stretch. That’s a meaningful move to be sure, and the Fed has noticed. Further, the Committee’s well aware that they need to be proactive with cuts, not reactive if they want to stick the proverbial landing.

But policymakers are suffering from a little PTSD vis-à-vis the inflation data. They’ve seen three bad inflation reports this year and three good ones. The Committee’s hawks surely want to see that “tie” broken in favor of disinflation before throwing their support behind a cut, particularly given still-decent growth outcomes and solid job gains (on the establishment survey anyway).

“The market is now pricing in three cuts for this year as investors pile into curve-steepening positions, [b]ut there’s little in the data to justify the sharp rally in bonds,” SocGen’s Subadra Rajappa remarked. “While there are signs that the labor market may be softening, there is little to suggest a need for imminent rate cuts.”

In the days after Dudley’s Op-Ed was published, the advance read on GDP for Q2 suggested the US economy, and particularly personal spending, was stronger than expected last quarter, while inflation ran a little warmer than economists collectively forecast. If there was any chance of a cut this week (and to be clear, there wasn’t) it was snuffed out by the GDP report.

The following day, the breakdown on personal spending and PCE prices for June was generally favorable for the Fed: As tipped by the GDP report, spending held up last month, and inflation was perhaps a touch warmer than anticipated, but by and large, the policy narrative was unchanged. That narrative says the first cut will come in September alongside a fresh dot plot which’ll likely reflect a total of two cuts for 2024 (September and December).

Equities stopped caring about this months ago. Stocks haven’t traded the policy narrative since December, or at least not consistently. A succession of warm CPI releases covering Q1 prompted vague allusions from officials to the possibility of another hike and it looked, for a while, like the Fed’s stay at terminal might be a very, very long one, but even that was insufficient to derail the risk rally, notwithstanding a minor swoon in April.

Markets are fully priced for two cuts for this year with pretty good odds of a third. The Committee has to work around the election, which’ll be wildly contentious and may end up being contested in court, if hopefully not in the streets.

For once, Jerome Powell’s communications task isn’t daunting. All he has to do this week is nod to the likelihood of a September cut conditional, of course, on inflation continuing to cooperate between now and that month’s meeting. He’ll want to avoid suggesting the September decision’s already made, but he also won’t want to push back too hard on market pricing.

Powell may get a “Why wait?” question or two, and he won’t have any great answers, but he can always just pound the table (or the lectern, given his inexplicable refusal to sit at press conferences) on some version of this talking point: “We want to be as confident as possible that inflation’s on a sustainable path back to our target and thanks to healthy growth and a sturdy labor market, we have the luxury of waiting for the disinflation process to play out.”

He’ll probably be asked about the Sahm rule, and Dudley’s name may well come up. Someone from Fox will probably ask why the Committee’s planning to cut rates with core inflation projected to remain above target for quite a while yet, and WaPo‘s Rachel Siegel will ask why the Fed wants to throw Americans out of work (she won’t put it that way, but suffice to say she’ll use her time to ask about the labor market). Nick Timiraos, assuming he’s not on vacation, will ask a convoluted question designed to demonstrate his allegedly nuanced understanding of monetary policy. Steve Liesman will do the same. I doubt the ratings will be great. If you’re spending your summer afternoons watching Fed Chair press conferences, thoughts and prayers.

Bottom line: If Powell has any sense about him, he’ll endeavor to make the July meeting every bit the non-event that it should be. There’s no reason for this meeting to be eventful.

“The most relevant question in the monetary policy space is no longer when the Fed will start cutting, rather how far the Committee will be able to lower rates before choosing to pause,” BMO’s Ian Lyngen and Vail Hartman wrote. “In the event the real economy performs as it has been — solid growth and employment, accompanied by cooling inflation — there is a case to be made for a total of 75 to 100bps of total cuts (in quarter-point increments) followed by a pause to assess their impact as well as any influence from the fiscal side.”

“We continue to hold the view that cuts to move away from ‘restrictive’ policy will require a more calibrated approach than a more traditional rate-cutting cycle,” SocGen’s Rajappa said. “We expect the Fed to confirm a September rate cut but not pre-commit to a cadence of cuts thereafter [and] we continue to believe the market is over-priced for cuts.”

Finally, I’d be remiss not to concede that the expansion’s probably on borrowed time. In that regard, it’s important not to lose track of the sword of Damocles. “July 26 marks the one-year anniversary of the 5.50% terminal rate,” BMO’s Lyngen remarked. “With lingering angst regarding the indeterminate lag of monetary policy actions hitting growth, inflation and employment, we still find ourselves awaiting the next proverbial shoe to drop.”