Federal Reserve Chairman Jerome Powell, in his testimony before the Senate Banking Committee on July 9, 2024, indicated that while the US economy has made ‘considerable progress’ in bringing inflation towards the 2% target, more positive data is needed before the Fed will consider cutting interest rates. Powell emphasized that the economy is no longer overheated and the labor market has cooled significantly compared to the extreme conditions during the COVID-19 pandemic.’We’ve made considerable progress in bringing inflation back down,’ Powell stated, ‘but more good data would strengthen our confidence that inflation is evolving sustainably towards 2%’. He cautioned that cutting rates too soon or too much could risk reversing the progress made in controlling inflation, while cutting too late or too little could weaken economic activity and employment.The market reaction to Powell’s testimony was mixed. The S&P 500 hit a fresh all-time high of 5,586 points, while the Dow Jones Industrial Average fell 0.3%. Traders are pricing in a high probability of a 25 basis point rate cut at the Fed’s September meeting, with estimates ranging from 70% to 76%.Powell also noted that the labor market has cooled but remains strong, with the Fed paying close attention to when to cut interest rates. The current federal funds rate stands between 5.25% and 5.5%, the highest level in over 23 years.Investors and analysts will be closely watching the consumer price index (CPI) data for June, set to be released on July 11, for further clues on the inflation trajectory and potential Fed actions. As Powell stated, ‘The exact timing of any rate cut is still data-dependent’, leaving the door open for adjustments based on incoming economic indicators.
Key points
- Fed Chair Powell indicates more positive data needed before considering rate cuts.
- US economy has made ‘considerable progress’ in reducing inflation, but it remains above 2% target.
- Market reaction mixed, with S&P 500 hitting new high while Dow Jones fell.
- High probability of rate cut in September, but decision remains data-dependent.
Contradictions👾While some sources report the S&P 500 hitting new highs, others mention the FTSE 100 and French CAC 40 falling, indicating mixed market reactions across different indices.
