How much more confident will Powell be on inflation?

July 8, 2024 9:23 pm

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The Fed chair will make a trip to Congress this week to deliver his semi-annual Humprey Hawkins testimony.

He starts in the Senate on Tuesday at 10 am then visits the House in a repeat the following day. Powell is great at staying on-message so I wouldn’t expect any big drama in the Q&A periods.

The question is whether he is ready to signal ‘greater confidence’ that inflation is trending lower. At Sintra last week, he edged in that direction, saying that the latest data shows they’re on a better path on wages and that the latest PCE data shows ‘really significant progress’ at +2.6% y/y.

  • We want to see more progress on inflation
  • We would like to see more data like we’ve seeing
  • “We just want to understand that the levels we’re seeing are a true reading on what’s happening in underlying inflation”
  • We have the ability to take our time and get his right
  • If we go too soon, we could undermine the work we’ve done on inflation

That doesn’t sound like someone who is ready to pivot to signaling a July hike after non-farm payrolls but I will be watching for the tone and cadence of his answers around inflation and jobs. Note that at times the written testimony is released early, including in the evening before.

At the moment, the market is pricing in just a 6% chance of a July 31 rate cut but that rises to 80% for the Sept 18 decision.

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