USD Relieved As Powell “Rejects” A July FED Rate Hike

Powell has highlighted the progress in CPI consumer inflation, noting that recent data has increased their confidence. However, he did not commit to or even suggest a rate cut in July, leaving investors without any clear signal for a cut, which in turn means no cut. As a result, the first rate cut now seems more likely to occur in September.

Goldman Sachs had been discussing the possibility of a July rate cut, with the odds climbing to 13% before Powell’s speech, spurred by weak US economic data. However, following his remarks, those odds have dropped to around 5%. If Powell intended to indicate a rate cut, he needed to do so now, as the blackout period begins on Friday and the odds indicate this clearly, which might be followed by a short lived bullish period for the USD.

Key Points from Fed Chairman Powell’s Address at the Economic Club of Washington:

• The economy has performed exceptionally well over the past couple of years.
• This year, the economy is expected to slow down while inflation continues to show progress, which is currently happening.
• The labor market is not tighter than it was before the pandemic.
• The second quarter’s inflation shows progress with three favorable readings.
• With inflation declining, the Fed will consider both of its mandates.
• An unexpected weakening in the labor market would prompt a response from the Fed.
• No specific signals will be given regarding particular meetings.
• Decisions will be based on evolving data and the economic outlook.
• The Fed’s decisions are based solely on data, not political influences.
• If the Fed waits for inflation to hit 2% before acting, it has waited too long.
• Greater confidence in a sustainable move towards 2% inflation is desired.
• Recent better inflation data increases the Fed’s confidence.
• The Fed takes confidentiality very seriously.
• Inflation post-pandemic emerged from the goods sector, aided by supply chain issues.
• The Fed saw goods inflation as temporary.
• The economic normalization was overestimated in terms of speed.
• The Fed aims not to be overly risk-averse.
• Predicting the economy’s future remains challenging.
• Powell believes there is a pathway to reduce inflation to 2% without severe economic pain.
• A hard landing scenario is unlikely.
• Powell enjoys his role and will remain in office until May 2026.
• Once the Fed has confidence in inflation, it will be time to act.
• The eurozone has experienced lower growth and is in a different position than the US.
• There are minor timing differences among global central banks, but policy similarities will be highlighted in history.
• Fed meetings typically conclude by 11 am before the decision announcement.
• The Federal Reserve Act provides the necessary authority, and the current legal framework is adequate.
• Powell is concerned about US deficits over time but states it is not the Fed’s role to advise on policy.