On Monday, July 15th at around 12:35 PM Eastern Time, Federal Reserve Chairman Powell attended a lunch meeting at the Washington D.C. Economic Club and had a conversation with the club’s chairman and co-founder of the Carlyle Group, David Rubenstein.
This is his first public speech since last week’s unexpected cooling of CPI inflation. The monetary decision of the Federal Reserve’s FOMC will be made on July 31st, and officials will enter a period of silence from this Saturday until Friday after the FOMC meeting, so the remarks of Powell and other members of the vote this week are crucial.
Nick Timiraos, a well-known financial journalist known as the “Federal Reserve News Agency,” said that Powell’s latest speech hinted at a rate cut, but refused to disclose the specific time. Powell’s leadership of the Federal Reserve usually avoids surprising the market with short-term policy decisions, so his remarks today did not change the market’s expectation of the Fed remaining inactive in July. Powell said, “The synchronous slowdown of inflation and economic activity is basically in line with the expectations of the Federal Reserve. I will not send any signals regarding any specific FOMC meeting. We will make corresponding monetary decisions at each meeting.”
Overall, Powell’s speech remains “dovish”, stating that the US economy has been doing well in recent years and the job market has entered a better and more balanced state. He specifically mentioned that there has been more progress in US inflation in the second quarter of this year, and the last three inflation reports have been “quite good”: “The economic data in the first quarter did not strengthen our confidence (that inflation would fall back to the 2% target), but the three data in the second quarter, including last week’s data, did to some extent enhance our confidence.”
He pointed out that while the Federal Reserve is paying attention to the cooling of inflation, it has also begun to be more concerned about the potential risk of labor market weakness. Some analysts say that recent statements from multiple Federal Reserve officials are reinforcing this key shift in tone: “Now that (US) inflation has fallen and the labor market has indeed cooled down, we will consider the dual mission of (maximizing employment and price stability) at the same time, and the balance between them is much better. If there is an unexpected weakness in the labor market, it may also be another reason to take policy action.”
Powell also reiterated his remarks during the congressional hearing last week, saying that interest rates could be cut without waiting for inflation to fall to the Federal Reserve’s target of 2%. “It will take too long”, because the impact of monetary policy is lagging. If the interest rate is kept too high for too long, it will excessively inhibit economic development. “The job market does not have to be more tight than before the COVID-19 epidemic.”
His other remarks during the Q&A session included: Powell was asked if he would serve as Federal Reserve Chairman until May 2026 and said, “Yes. I have no comment today on whether I will continue to be appointed as the Chairman of the Federal Reserve in the future. I feel very happy to serve as the chairman of the Federal Reserve.
A ‘hard landing’ of the US economy is not currently the most likely scenario, and it has always been believed that there is a ‘soft landing’ path. There is a possibility of inflation falling back to 2% without causing pain in the job market.
The neutral interest rate may have risen from the level during the crisis. The FOMC monetary policy still has some limitations, but it is not extremely restrictive anymore. The factors that cause slow changes in prices may or may not have changed.
The Federal Reserve will use ChatGPT to predict potential questions that may be raised by the media during press conferences after the FOMC, but will not use AI for monetary decision-making. The questions generated by ChatGPT are not as excellent as those asked by reporters on site.
I have long been very concerned about the unsustainable size of the US fiscal deficit. Although the Federal Reserve should not evaluate these, we really need to work hard to resolve the unsustainability of the debt problem. Solving the deficit problem requires cross party cooperation.
Political violence has no place in American society. It is fortunate that the injuries sustained by former US President Trump after his assassination were not more severe. The decision of the Federal Reserve will not be influenced by political factors, and Powell refuses to discuss the market impact of Trump’s assassination.
During Powell’s speech, the US stock index maintained its upward trend, with small cap stocks leading the way with a nearly 2% increase. The Dow Jones Industrial Average rose over 200 points and both hit historic highs with the S&P 500 index at the beginning of the session. After his Q&A session, the gains of major stock indices, except for small cap stocks, narrowed.
As Powell talked about the progress of inflation and confidence, the 10-year US Treasury yield fell below 4.20% and hit a new daily low. During the speech, it regained its short-term decline and expanded to 4.6 basis points within a day after the speech, standing at 4.23%.
The yield of two-year US Treasury bonds also plummeted to a daily low of 4.4154% in the short term, but rose and approached 4.46% within a day after Powell’s speech.
Spot gold expanded its gains to a daily high of $2439.75 per ounce in the early stages of Powell’s speech, but narrowed its gains to 0.4% after the speech, pushing it below $2420. Prior to Powell’s speech, it had risen 1% and broken through the $2430 integer.
At the beginning of Powell’s speech, the US dollar index DXY turned down and approached 104 within a day, then recovered from the overall decline and turned back to rise again. After the speech, the increase expanded to 0.13% at 104.23. The US dollar rose 0.1% against the Japanese yen and returned above 158, having previously plunged to a daily low of 157.19.
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