Attendance at Semiannual Senate Monetary Policy Report
"Delayed Policy Easing May Weaken Economy and Employment"
Jerome Powell, Chairman of the U.S. Federal Reserve (Fed), expressed concerns that maintaining the benchmark interest rate too high for too long could jeopardize economic growth. The market interpreted Powell's remarks, which began to mention a slowdown in employment, as dovish (favoring monetary easing), raising expectations that the Fed will start cutting rates in September.
On the 9th (local time), Powell appeared before the U.S. Senate for the semiannual monetary policy report and stated, "If policy constraints are eased too late or too little, economic activity and employment could weaken excessively."
He added, "There has been progress over the past two years in reducing inflation and cooling the labor market," and "Given this, high inflation is not the only risk we face."
Powell repeatedly emphasized the 'two-sided risks' in balancing the Fed's goals of full employment and price stability. While the unemployment rate remains historically low, he also mentioned that an unexpected labor market slowdown could be a reason for policy easing. This marks a shift from his previous focus on emphasizing inflationary concerns. With signs of a slowdown detected in the labor market following inflation, it is analyzed that the Fed is weighing the timing of rate cuts.
David Russell, Global Market Strategist at TradeStation, said, "The labor market is slowing down, and Powell has started to pay attention," adding, "He recognizes that policy is restrictive and that there has been progress on inflation."
Powell gave a positive assessment of the current inflation situation. He stated, "Recent inflation indicators have shown modest further progress," and "More good data to come will reinforce our confidence that inflation is consistently moving toward 2%."
The U.S. Department of Labor is set to release the consumer price index (CPI) for last month on the 11th, which is expected to rise 3.1% year-on-year, below the 3.3% increase in May. Following the CPI increases in April and May (3.4% and 3.3%, respectively), both of which were lower than the previous months (3.5% and 3.4%), the CPI slowdown is expected to have continued for three consecutive months.
However, when asked about the timing of rate cuts, Powell avoided giving specifics, responding, "We need to see better inflation data," and "I will not give any signals regarding the timing of future actions."
The Fed has maintained the benchmark interest rate at 5.25?5.5% for a year. This is the highest level in 23 years, resulting from 11 consecutive rate hikes since March 2022.
Since Powell's remarks did not contain any content that would dampen market expectations for rate cuts, the outlook for a September cut is gaining more momentum.
Krishna Guha, Vice Chairman of Evercore ISI, analyzed, "We read his comments on risk balance particularly dovishly," and "If upcoming data, such as the inflation report released on Thursday (the 11th), supports the Fed's improved assessment, the foundation for a September rate cut will continue to be built."
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