Will Powell leave rate hikes in the mercy of the data again?

What’s the Theme for FED’s Powell at Tomorrow’s Testimony?

Posted Tuesday, June 20, 2023 by
Skerdian Meta • 2 min read

The FED held its meeting about two weeks ago, holding interest rates at 5.25% as they were, after hiking them in every meeting for more than a year. Although the USD rallied initially after hawkish comments about and dot plot, which showed two more rate hikes until the end of the year. Although, markets think that just one more hike is enough, so the USD retreated on Thursday and Friday last week.

There is uncertainty about the future policy, shown on the price action since the FOMC meeting last Wednesday. According to Timiraos from the Wall Street Journal, it is difficult to definitively determine if the Federal Reserve (Fed) has completed its actions or if there is more to come. While it is challenging, it is not entirely impossible to envision scenarios where the Fed may decide not to make any changes in July. On the other hand, it is comparatively easier to identify reasons why the Fed should continue taking action in July.

One of the challenges in making a conclusive judgment is the limited availability of substantial economic data between now and the July meeting. Without sufficient data, it becomes harder to make accurate predictions and decisions regarding the Fed’s actions.

Furthermore, it is unlikely that the Fed would want to disrupt or cause any adverse effects in the economy. Hence, they are likely to approach their decisions cautiously, with the intention of avoiding any potential negative consequences.

Market participants will be eagerly awaiting guidance from Powell regarding the future trajectory of interest rates. This anticipation arises due to the persistent inflation, which remains significantly higher than the Federal Reserve’s target of 2% annually, and the tightness of the labor market, which is still notable when compared to historical standards.

Powell’s remarks will be particularly significant in a week dominated by housing market data. The Census Bureau and the Department of Housing and Urban Development recently released a report indicating an improvement in residential construction during May. Housing starts experienced a notable surge of 21.7%, reaching an annual rate of 1.631 million, while building permits saw a 5.2% increase, reaching an annual level of 1.491 million. Additionally, the National Association of Home Builders reported a five-point rise in its monthly confidence index on Monday, bringing it to a solidly positive territory with a reading of 55.

These developments in the housing market, along with Powell’s upcoming comments, will likely have a significant impact on market sentiment and expectations regarding the future actions of the Federal Reserve.

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