In today's pre-market, we look forward to a public speech by Federal Reserve Chair Jay Powell. Discussions will include, most prominently, whether or not the interest rate cut baked into the stock market currently - at a 100% chance - is warranted, or if there if some idea the Fed Chair looks to hold at 2.25-2.50%.
Lagging inflation, trade tensions (most clearly between the U.S. and China, but now extending beyond) and weak global demand as a result are all reasons Powell may favor a rate cut. But a supposed ease in trade tensions, accompanied by a strong U.S. jobs report last Friday, call into question whether or not conditions are truly ripe for a rate cut.
As I'm writing this column, Powell has released a statement: he remains troubled by uncertainty over trade, global growth and unresolved issues with Brexit and the U.S. debt ceiling. Notably, in the June meeting, Powell actively stated the question whether this uncertainty would abate. Currently, he's saying these uncertainties remain - thus, the market is interpreting in real time that Powell is again leaning toward a rate cut at the end of the month, and we see market futures swing from negative to positive upon the release of this statement.
That said, talk of a 50 basis-point cut have pretty much fallen away recently. If/when we see an interest rate cut at the end of July, that 100% certainty is for 25 basis points only. Powell said the U.S. economy is performing "reasonably well": this is ultimately an endorsement of the status quo, though if he sees headwinds coming, he (and the rest of the Fed policy makers) may decide to be preemptive and cut, regardless.
Well - not exactly "regardless." We still have new CPI, Q2 GDP, Retail Sales and updates on trade tensions to come in the next three weeks ahead of the next Fed Meeting. But for today, the language Powell uses has much power to send the market in either direction (or left flat), depending on his choice of emphasis.
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