During Tuesday’s European Central Bank forum in Portugal, Federal Reserve Chair Jerome Powell hinted at a possible interest rate cut.
He stated that the US made significant progress in taming inflation but added that he needs more evidence and data that inflation is on a sustainable downward trend to reach the Fed’s 2% goal.
The New York stock market, which was on a decline, turned around to an upward trend after Powell’s remarks, as Powell did not express a hardline stance.
“Significant Progress Made”
According to reports by US media, including The Wall Street Journal (WSJ), Powell stated in his speech at the ECB forum in Sintra, Portugal, that the Fed has made “significant progress” on reducing inflationary pressures after a rebound from January to March this year, which caused significant market tension. However, it entered a downward phase again after April.
In particular, the Personal Consumption Expenditures (PCE) price index, which the Fed uses as an inflation standard, was confirmed to have dropped to its lowest point in over three years since May.
Buoyed by the PCE index, investors anticipated the Fed’s interest rate cuts. The market expectations gained more strength following Powell’s comments on Tuesday.
According to the Chicago Mercantile Exchange (CME) FedWatch, the forecast that the Fed will cut interest rates at the FOMC on September 17-18 rose to 70% from 65% the day before.
Investors believe the Fed will pave the way for a rate cut at the July FOMC to start lowering rates in September.
“Too soon to be positive?”
However, Powell added that more time is needed to be sure that inflation is sustainably falling.
Unlike last year, when up to seven rate cuts were expected as inflation began to fall downward, a surprising rebound that lasted three months since January dampened expectations for a rate cut.
“We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy,” Powell emphasized.
Stock Market Rises, Treasury Yield Falls
After Powell’s comments, US Treasury yields fell. The 10-year US Treasury yield, which had surged over 0.1%p the previous day, dropped by 0.041%p to 4.435%.
Meanwhile, the New York stock market appeared strong, led by tech stocks.
In the morning session, the Nasdaq continued its record high for the second consecutive day, rising 0.25% to 17,925.35 compared to the previous day.
The Standard & Poor’s (S&P) 500 also rose by 0.07%. However, it stayed at 5,478.99, still short of the record high of 5,487.03 set on May 18.
The Dow Jones Industrial Average recorded a nearly flat trend, recording 39,163.35, down 0.02%.
