what powell said about the next cut

After ECBalso there Fed prepares for the first cut after a series of raises (11 consecutivei). This is the scenario that the words of the President of the Federal Reserve seem to outline, Jerome Powell which however remain on the line of caution

Powell prepares the cut (cautiously)

During his regular semi-annual speech to the US Senate Banking Committee, Powell has in fact underlined how interest rates that are too high for too long can jeopardize economic growth. A late or insignificant easing of monetary policy could in fact “unduly weaken economic activity and employment,” he said. The Fed’s overnight interest rate currently stands between 5.25% and 5.50%the highest level in 23 years after inflation reached its highest level since the early 1980s.

Inflation Defeated? We’re on the Right Track

And Powell also wanted to emphasize that interest rates will most likely not return to the near-zero territory they were in for most of the 15 years before the Covid-19 pandemic. “I think we’re probably not going to go back to that era between the global financial crisis and the pandemic, when rates were very low and inflation was very low,” he said in an address to the House Financial Services Committee earlier this week.

The head of the US central bank then stressed that inflation does not have to return to its annual target of 2% to consider lowering interest rates, but there still needs to be greater confidence that inflation is moving toward the target. Powell, in fact, is not yet ready to declare that inflation has been defeated. “I have some confidence in that,” Powell said when asked, but “I’m not ready to say that yet.”

Election puzzle

In response to a question from a Republican lawmaker about whether the Fed might cut interest rates at its mid-September meeting, less than two months before Election Day, Powell said: “Our commitment is to make decisions when and how they are needed, based on the data, the incoming data, the evolving outlook and the balance of risks, and not on other factors, including political factors.”

Just one cut? What do the markets expect?

The markets are therefore betting, on a cut in September and that a further cut of a quarter of a percentage point will probably be made by the end of the year despite the fact that FOMC members at their June meeting had indicated only one cut. But surprises cannot be ruled out in the wake of the encouraging inflation data.