Federal Reserve Chairman Jerome Powell’s recent testimony before Congress has sent ripples through global financial markets, as investors closely analyze his comments for clues about future interest rate decisions. While Powell’s cautious tone has slightly tempered expectations for immediate rate cuts, it has not extinguished hopes for a reduction later this year.Powell emphasized that the Fed needs ‘greater confidence’ that inflation is on track to reach its 2% target before considering rate cuts. This stance has led to a slight adjustment in market expectations, with the probability of a rate cut by September now perceived at 73%, down from 76% earlier.Despite the cautious approach, Powell’s acknowledgment that the US economy is no longer overheated and that signs of a cooling job market could lead to a rate cut has kept investor optimism alive. This sentiment has been reflected in the stock markets, with the S&P 500 experiencing a six-day winning streak and reaching new record highs.The dollar has shown strength in response to Powell’s comments, recovering from a three-week low. Meanwhile, gold prices have risen, with spot gold up 0.2% to $2,367.79 per ounce, as lower interest rates typically increase the appeal of non-yielding assets like gold.Global markets are now eagerly awaiting the release of June’s Consumer Price Index (CPI) data, scheduled for Thursday. This data is expected to show a 0.1% monthly increase in main prices and a 0.2% rise in core prices, translating to annual increases of 3.1% and 3.4% respectively. These figures will be crucial in shaping the Fed’s future monetary policy decisions and could significantly impact market movements in the coming months.
Key points
- Powell’s testimony suggests the Fed needs more confidence in inflation trends before cutting rates.
- Market expectations for a September rate cut have slightly decreased to 73%.
- The S&P 500 has reached new record highs despite Powell’s cautious tone.
- June’s CPI data, due Thursday, will be crucial for future Fed decisions.
Contradictions👾While some sources indicate a slight cooling of rate cut expectations, others suggest that Powell’s comments have reinforced expectations of imminent cuts.
