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10 July 2024 | FXGT.com

Powell’s Cautious Rate Approach Keeps Markets Steady, Thursday’s CPI Data in Focus

  • Powell’s Senate Testimony: Fed Chair Jerome Powell emphasized a cautious approach to interest rate adjustments, highlighting the risks of acting too soon or too late. He noted that the US economy is progressing toward the 2% inflation target, but the labour market, while cooling, remains strong.
  • Economic Data and Fed’s Dual Mandate: Recent economic data shows mixed signals for the US economy. The annual PCE inflation rate was 2.6% in June, down from 2.7% in May. Powell highlighted the importance of balancing the risks of cutting rates too soon, which could reignite inflation, and waiting too long, which could weaken the labour market.
  • Market Reactions: Powell’s testimony did not cause significant market reactions. The US 10-year Treasury yield edged up to 4.30%, and the DXY ended the day relatively unchanged. Gold prices rose above $2,360, gaining more than 0.25%. The S&P 500 and Nasdaq reached new records, with strong performances in bank and tech stocks.
  • Rate Cut Speculation: According to the CME FedWatch Tool, investors are pricing in 73% odds of a Fed rate cut in September. Powell emphasized the need for “good data” before considering rate cuts.
  • US Economic Data: The focus is on the upcoming US Consumer Price Index (CPI) report for June, expected on Thursday. Core inflation is projected to grow by 0.2% monthly and 3.4% annually, with headline inflation estimated to decelerate to 3.1% from May’s 3.3%.
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