In his prepared testimony for Congress, Fed chair Jerome Powell seems to have laid the groundwork for looser monetary policy from the FOMC. The scene is set for a July rate cut, but what is still in question, is how many we will now see.
Powell painted a rather downbeat picture of the economy. Playing down the Q1 GDP print of +3.1% as being net exports and inventories driven (not sustainable), Powell pointed to the slowing business growth, which “slowed notably” and “moderated” in Q2. Furthermore, business fixed investment (citing the trade tensions) whilst housing and manufacturing output declineing over both Q1 and Q2.
On inflation, Powell looks to be crucially increasingly cautious. He talks about how the FOMC was leaning towards accommodative policy in the latest meeting, and it seems that these conditions driving this opinion have continued. A couple of meetings ago, the Fed talked about the drop in inflation being transitory, but inflation pressures now remain muted. We know that inflation is being viewed as crucial by the Fed and this is the main crux of the dovish steer. It also certainly puts heavy emphasis on tomorrow’s CPI.
All things considered, this is a testimony that suggests the FOMC will move to cut rates in July. This looks to be a cautious stance from Powell. A 25 basis poi