Fed Chair Powell’s remarks at the ECB’s annual Sintra forum this afternoon sounded, at the margin, just a touch more dovish than those made of late, with the Chair noting that the US economy has made “quite a bit of progress” back towards the 2% inflation target, while also flagging that the economy is back on a disinflationary path, as suggested by the May CPI and PCE reports.
Commentary of this ilk appears to further open the door to a September rate cut, especially with Powell also flagging the risk associated with leaving it too late to deliver the first rate reduction.
A softer-than-expected jobs report on Friday, were it to come to pass, would likely further cement the case for said cut, to which markets assign a roughly 70% chance – perhaps, a touch underdone.
Naturally, risk sentiment has been given a lift by Powell’s comments, with equity futures back into positive territory on the day; dip buyers continue to rule the roost, with the medium-run path of least resistance continuing to lead to the upside, ably assisted by the ongoing ‘Fed put’, and policymakers clear desire to deliver a 25bp cut – and more beyond that – sooner rather than later.
The dollar has also faced some modest headwinds, though remains well within recent ranges against most G10 peers, ranges that should persist for some time, given the relatively narrow divergences between DM central banks, and the synchronised disinflationary path that most major economies continue to take.
