I would like to state that yesterday’s press conference was one of the calmer ones and delivered, more or less, exactly what the market was expecting. Luckily, fears of a hawkish shift in the Fed’s policy did not materialize. Powell maintained his status quo. The current state is: a resilient labor market and sideways-moving inflation. I believe that unless there is a shift in balance in either of these two, we will not see any change in the monetary policy. Therefore, every data reading in the upcoming periods is going to be crucial for evaluating and predicting any future bias. Namely, PCE and CPI data for inflation and JOLTS job openings and Initial Jobless Claims to monitor strength in the labor market. Now let’s say the Fed is going to get the desired confirmation towards 2% inflation. That leaves us, in my opinion, with two possible dates this year: the September and December meetings. If I had to personally pick, I think we could see it rather in December because the Fed will, in my opinion, try to avoid any monetary changes relatively close to the US Elections.
Scenario two is another round of inflation where a shift into a hawkish outlook would become a reality, and that would be a whole different story. But given the speed at which we shifted from almost 100% certainty of 4 rate cuts this year—and the market accepted this almost as a fact—to speculation about whether there will even be any rate cuts this year, I think this scenario does not seem as far-fetched as it might have a couple of months ago.
