Powell's labor market remarks signal rate cut likely to come this year, says Raymond James
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POWELL'S LABOR MARKET REMARKS SIGNAL RATE CUT LIKELY TO COME THIS YEAR, RAYMOND JAMES
Federal Reserve Chair Jerome Powell's remarks on U.S. labor market conditions indicates that the central bank is not just focused on inflation as it contemplates the start of its interest rate easing cycle, Raymond James Chief Market Strategist Matthew Orton said in an interview with Reuters.
In the second day of testimony before the U.S. Congress on Wednesday, Powell said he felt the U.S. was still heading towards a so-called soft landing where the Fed's inflation target is met without a punishing rise in the unemployment rate - an achievement many thought impossible when inflation in 2022 hit a 40-year-high.
Powell testified before members of the House Financial Services Committee, a day after speaking before the Senate Banking Committee on Tuesday.
"He's simply reiterated what we heard from the Fed meeting, that the risks are coming into better balance on the inflation front," Orton said.
"But hearing him talk about the labor market directly, I think gives even more confidence that the fact we are going to see a rate cut at some point coming down in the future," Orton added.
The yield on benchmark U.S. 10-year notes US10YT=RR fell 1.4 basis points to 4.286% on Wednesday. Market bets on a 25-basis-point rate cut from the Fed in September was at 74%, up from around 70% on Tuesday and 45% a month ago, according to CME's FedWatch.
"There's still three CPI reports that we're slated to get between now and September, so it's hard to say conclusively that he's leaning towards September or if it's going to be pushed off. So the fact that we haven't seen a big change with respect to market pricing makes sense," Orton said.
The June inflation report, which is set to released on Thursday, is likely to support the Fed's narrative of a slowdown in consumer prices that will be conducive for interest rate cuts in coming months, Orton said.
"My expectation for CPI is that it will continue to see the easing trend with respect to inflation. But I don't think the decline we're going to see for June is going to be as strong as what we saw in May," he said.
(Chibuike Oguh)
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