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Fed officials stick to Powell’s bullish script for longer as key inflation reading approaches
Jay Powell’s colleagues spent the last week supporting the central bank chairman’s stance hit home in his last press conference: Interest rates will stay higher for longer.
In a series of speeches and interviews, several Fed officials reinforced that they will adopt a careful and measured approach to monetary policy as they digest hotter-than-expected inflation at the beginning of this year and assess whether this situation changes in the coming years. months.
New York Fed President John Williams said “politics is in a very good place 1715545205.” Minneapolis Fed President Neel Kashkari added: “I think it’s much more likely that we’re going to be sitting here longer than we expect.” Chicago Fed President Austan Goolsbee noted, “I think we should wait now.”
The comments came after the Fed decided on May 1 to keep its benchmark interest rate in a range of 5.25% to 5.50%, the highest level in 23 years.
The Fed’s interest rate setting committee said in its latest policy statement that “in recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective.”
The next opportunity for more clarity comes this week with the first inflation reading for the start of the second quarter on Wednesday via the Consumer Price Index (CPI).
April’s CPI is expected to improve, dropping to 3.6% from 3.8% in March on a “core” basis, which excludes volatility in food and energy prices.
“They may need several months of inflation showing that it is coming back down before they signal that … they have the confidence to cut,” said Esther George, former president of the Kansas City Fed.
George said he believes the Fed will need three months of encouraging data. If that happens, the first rate cut could come in September – even with presidential elections looming in November. Two rate cuts could still come this year, she added, or no rate cuts at all.
If inflation news improves soon, it will reignite talk about the timing of a first cut, said former St. Louis Fed President James Bullard.
He said he believed a first cut in December was possible, while also arguing that the Fed could justify a cut now as long as the central bank promised nothing more.
‘You have to live with this decision’
Both George and Bullard experienced another election year in 2016, when all eyes were on the Fed as it pondered whether to take action.
This year, the question was when the Fed would raise rates after years of loose monetary policy needed to stimulate an economy hurt by the 2008 financial crisis.
The story continues
Federal Reserve Bank Chairman Jerome Powell speaking at a press conference on May 1. (Chip Somodevilla/Getty Images) (Chip Somodevilla via Getty Images)
He waited throughout 2016 for the greater confidence needed to raise rates and only did so at the last meeting of the year, in December, after Donald Trump was elected president.
The tightening cycle that began in 2016 was done on the assumption that inflation would return to the Fed’s 2% target, Bullard said, rather than waiting for absolute certainty.
“It was anticipatory,” he said, and it took until 2021 for inflation to really rise.
“I think we raised the policy rate quite a bit in an environment where inflation was actually below target, and I think maybe it’s not seen as the best policy in hindsight,” he added.
George, who at the time was on the Fed’s interest rate-setting committee, said the central bank wanted to be really confident that raising rates was the right thing to do.
Esther George, left, when she was president of the Kansas City Fed. She is with New York Fed President John Williams in the center and Fed Chairman Jerome Powell in 2018. (REUTERS/Ann Saphir) (REUTERS/Reuters)
“I think both the uncertainty and the need for confidence in both periods were kind of a rallying cry for the FOMC,” she said. “Remember, for the U.S. economy, the largest economy in the world, the American public, you are not going to play fast and loose with risk.”
The Fed, she said, did not use the election as motivation for any decisions.
“One thing I always had in mind is that you have to live with this decision long after an election. You’re trying to see what’s in the long-term interest of the committee’s decision-making. oh, we would like to do it now to avoid the election.”
Not all Fed officials are optimistic that rate cuts will still happen this year. Fed Governor Michelle Bowman said Friday that she does not expect any cuts this year due to the direction of inflation.
Kashkari also did not rule out an increase if inflation stays close to 3%.
Goolsbee, who was dovish in his comments earlier this year, made it clear on Friday that three months of hotter inflation at the start of the year had changed his view that inflation was clearly on track for 2%.
Strong consumer spending and job growth are leading you to question whether the economy is tipping toward overheating and whether that will be lasting or just a brief moment.
“In my opinion, there isn’t much evidence that inflation is stuck at 3%,” Goolsbee said.
“We’ve hit that hurdle and now, I guess, now we’re going to wait.”
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The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
Earnings Highlight: Thursday, July 18 – Netflix (NFLX), Abbott Laboratories (ABT), Black stone (BX), Domino’s pizza (ZDP) and Taiwan Semiconductor Manufacturing (TSM). See the full earnings calendar.
Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above â‚ą260, one can buy this Reliance Group stock at the short term target of â‚ą295, keeping a stop loss of â‚ą240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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