Forexlive Americas FX news wrap 9 Jul: Powell’s testimony keeps easing door open for Sept. | Forexlive

Fed Chair Powell testified at the U.S. Senate today on Capitol Hill in the first of two testimonies in front of US lawmakers. Tomorrow the chair will be speaking to the House of Representatives.

During his testimony today, Fed chair explicitly said that he would not talk about a change in rates timetable, although he did signal that is most likely to be a decline in rates. He characterized the risk as two-way and not just skewed toward inflation. He commented on a couple occasions, that the labor market has cooled considerably, but that it remains strong. Nevertheless, he thought employment wasn’t a large contributor to inflationary pressures.

The chairs comments kept September cut on the table, and the potential for two cuts still an “odds-on favorite” possibility (with December pricing in a 75% chance).

Below is a summary of the major points made by the chairman on policy, the economy, inflation, growth, and employment

Policy and Decision-Making:

• The Fed remains committed to a 2% inflation goal and maintaining well-anchored long-term inflation expectations.
• Decisions on rate adjustments will be made carefully, considering incoming data, balance of risks, and appropriate policy paths.
• There are risks both in reducing restraint too late or too little, which could weaken the economy and job market, and in reducing restraint too soon or too much, which could reverse inflation progress.
• The Fed will continue making decisions on a meeting-by-meeting basis and does not plan a policy rate cut until there’s greater confidence that inflation is heading sustainably toward 2%.

Economy:

• The US economy is expanding at a solid pace and has performed exceptionally compared to global peers.
• GDP growth appears to have moderated in the first half of 2024.

Inflation:

• Inflation remains above the 2% goal, but there has been considerable progress toward this target with recent monthly readings showing modest further progress.
• More good inflation data is needed to build confidence in cutting rates.
• Restrictive policy is currently helping to put downward pressure on inflation.

Growth:

• The economy has been expanding solidly, but there are significant housing issues exacerbated by the pandemic.
• The Fed’s tighter policy is impacting housing sector activity, with the best way to address housing supply issues being to reduce inflation.

Employment:

• The labor market has cooled considerably but remains strong and is now more or less back to pre-pandemic levels.
• Unemployment is still low by historical standards.
• Wage increases, while still high, are coming down to more sustainable levels.
• The Fed recognizes the labor market is not a broad source of inflationary pressures now and aims to balance risks in achieving employment and inflation goals.

Additional Points:

• The Fed is having discussions about potential changes to the Basel III endgame proposal and is close to an agreement on these changes.
• Immigration is seen as neutral on inflation in the long run, but it may have had short-term impacts, particularly on the housing market in certain areas.

As the dust settles in the Forex market, the AUD is ending the day as the strongest of the major currencies, while the JPY is the weakest. The USD is ending mixed/modestly higher with modest declines versus the CAD, AUD and NZD, and gains vs the JPY, GBP, and EUR.