USA (Washington Insider Magazine)- Federal Reserve Chair Jerome Powell begins an important week of commentary from U.S. central bank officials, assessing slowed inflation and considering signaling the start of interest rate cuts.
Countdown to Policy Silence
The Federal Reserve’s next meeting on July 30-31 precedes a mandated quiet period starting July 20, during which policymakers cannot comment on monetary policy until the Friday after the meeting. This week is crucial for the Fed to indicate potential rate cuts or justify maintaining the current policy stance.
Rate Cuts on the Horizon?
According to Business-standard, with inflation nearing the 2% target and concerns about sustaining a robust job market, analysts expect the Fed to signal upcoming rate cuts. Citi analysts forecast a strong signal in July for possible rate cuts in September, assuming the economy performs in line with expectations. The recent weak inflation data prompted investors to boost the estimated likelihood of a September cut to over 90 per cent, according to the CME Group’s FedWatch tool.
Assessing Recent Data
During the meeting, policymakers are unlikely to lower the benchmark interest rate, which is now between 5.25% and 5.5%. However, recent poor inflation data may drive a policy announcement indicating a likely rate drop in September. In June, the Consumer Price Index (CPI) decreased, and wholesale prices showed signs of reducing, supporting the case for monetary policy easing.
Powell’s Upcoming Speech
Powell will speak at the Economic Club of Washington at 12:30 p.m. EDT on Monday. Last week, he informed lawmakers that more favorable inflation data would support lowering borrowing costs, though he refrained from providing a specific timeline. Economists now estimate that the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, fell below 2.5% in June.
Key Fed Officials to Watch
This week, several Fed officials will provide remarks, offering insights into their views on inflation and monetary policy:
– Fed Governor Adriana Kugler speaks on Tuesday afternoon.
– Fed Governor Chris Waller and Richmond Fed President Thomas Barkin speak on Wednesday morning.
– New York Fed President John Williams has an overseas appearance on Friday.
Waller’s remarks, in particular, are anticipated due to his recent research indicating potential job market weakening and its impact on unemployment rates.
Job Market Trends
Fed officials believe the cooling job market has largely absorbed the pandemic-era surge in job openings. However, the unemployment rate has been steadily increasing, reaching 4.1% in June, the highest in over two years. Waller previously expressed the need for “several more months of good inflation data” before supporting a rate cut.
Upcoming Economic Indicators
The PCE price index has fallen from 2.7% to 2.6% in May, and additional drops are forecast. Upcoming statistics, particularly an initial report on second-quarter economic growth, may prompt the Fed to change its policy statement phrasing, perhaps paving the way for rate decreases. Chicago Fed President Austan Goolsbee noted the inflation rate is nearing the target, and continued positive data will increase confidence in achieving the 2% goal.
