Powell Says Fed More Likely to Cut Rates than Raise Them
The Fed says that more good data is needed to boost its confidence that inflation is sustainably moving towards the 2% target.
Key points:
- The Federal Reserve has noted significant progress in achieving the 2% inflation target.
- However, the central bank needs more data to be confident that inflation will reach its target.
- S&P 500 index was trading at a historic high, with traders remaining optimistic.
On July 9th, Federal Reserve Chairman Jerome Powell released his semi annual monetary policy report.
Economic progress and Inflation targets
In his preparatory speech, Powell pointed out that the US economy has made significant progress in achieving the Federal Reserve's 2% inflation target. He also mentioned that although the labor market has cooled down, it remains strong. The Federal Reserve believes that "a tight monetary policy stance helps achieve a better balance between demand and supply conditions, and puts downward pressure on inflation."
Dual risks and future policy directions
During the Q&A session, Powell stated that the Federal Reserve faces dual risks. If the Federal Reserve cuts interest rates too early or excessively, it will undermine the progress of inflation governance; If interest rates are cut too late, it will put too much pressure on the economy. When it comes to the next steps, Powell pointed out that the possibility of a rate cut is greater than a rate hike.
Market response
As traders responded to Powell's comments, the US dollar index strengthened. Overall, the US dollar index is attempting to rebound after falling from its June high.
Gold prices fell from their intraday highs as traders focused on the rebound of the US dollar. It should be noted that potential interest rate cuts are beneficial for the gold market, so it remains to be seen whether the pullback in gold will continue.
The S&P 500 index closed near 5590 points, with investors remaining optimistic. Powell's testimony did not bring any unexpected news, which is positive for the stock market. As the Federal Reserve gradually transitions towards a rate cutting cycle, stock traders may continue to focus on the potential of artificial intelligence technology.
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