"After a lack of progress toward our 2% inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress."
- J. Powell’s testimony at the Senate Banking Committee
Chairman Powell began his semiannual testimony to Congress and the Senate today. He will conclude his monetary policy report to the House Financial Services Committee on Wednesday.
Chairman Powell acknowledged that “inflation has come a long way since reaching a four-decade peak two years ago” and that recent data have shown progress but tempered his statement by saying that central bank officials still want to see more progress before cutting interest rates. Powell did not offer any insights about the timing and number of rate cuts that the Federal Reserve will implement this year.
According to the most recent June SEP (Summary of Economic Projections), Federal Reserve officials anticipate that they will implement only one interest rate cut this year. This is a dramatic revision from the projections in March in which Fed officials anticipated a total of three rate cuts in 2024.
The chairman characterized the current state of the economy as “strong but not overheated” when he addressed the inherent risks in terms of the timing and number of interest rate cuts this year.
During his testimony, he addressed the risks saying, “We are well aware that we now face two-sided risks and have for some time. Noting that the labor market appears to be fully back in balance, and adding that Federal Reserve officials know that if they loosen policy too much or too soon, they would undermine the progress on inflation and if they move too quickly, they will hamper the ongoing economic expansion.
Chairman Powell did offer a glimmer of hope when he said that "more good data" could open the door to interest rate cuts, mentioning recent reports that demonstrate that the labor market and inflation are continuing to cool.
Powell's first day of testimony was interpreted by investors as cautiously positive with U.S. equities gaining fractionally, the dollar strengthening, and gold trading marginally higher. The Dow declined by 0.13%, while the S&P 500 gained 0.07%, and the NASDAQ composite gained 0.14%. The dollar gained 0.11% taking the index to 105.103.
As of 5:30 PM ET, gold futures basis the most active August contract is currently fixed at $2367.90 after factoring in today’s net gain of $4.40. Since Wednesday of last week gold has closed above its 50-day simple moving average. This is significant in that market technicians use this average to determine short-term market sentiment.
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