Federal Reserve Chairman Powell will go to Capitol Hill later to deliver his twice-yearly economic report, during which lawmakers may bombard him with a series of "fierce" bombardments, but it is estimated that Powell will still "keep silent" on the details of when the Fed will cut interest rates.

With the Fed keeping rates steady and the U.S. election approaching, UBS U.S. chief economist Jonathan Pingle wrote, "Powell may face a tougher task than usual, with inflation becoming a political issue and the election looming."

While Pingle expects Powell to avoid revealing any specific details during the hearing, Fed watchers are likely to see him defend the Fed's current monetary policy stance and policymakers' reliance on data.

Powell is expected to note that it may be appropriate to begin easing monetary policy later this year, and even when pressed, he would not go into detail. If Powell uses the word "soon" to describe the timing of a potential rate cut, Pingle said it would be worth watching.

Powell’s current views on the current labor market are of particular interest. The risk that the Fed’s high interest rates will lead to slower job growth has increased since his last appearance before Congress. Officials are weighing that risk against the potential for faster inflation if they cut rates too soon.

Wage growth remains quite strong, with the United States adding an average of 222,300 jobs per month in the first half of this year, but there are signs that the labor market is gradually stabilizing from the extremely high levels in early 2022. Last month, the unemployment rate rose to 4.1%, while the Labor Department made significant downward revisions to job growth for April and May and jobless claims continued to rise.

In the minutes of the Fed meeting released last week, Fed staff noted that despite a bumpy first quarter, inflation measured by the PCE price index has shown modest downward progress this year. Although the PCE annual rate was 2.6% in May, it was still above the Fed's target.

Powell noted at the European Central Bank forum in Portugal last week that much progress has been made in controlling inflation in the United States, even as he reiterated that officials want to be more "confident" about a sustainable decline in inflation before starting to cut rates.

However, the Fed’s recent progress in cooling inflation and the labor market has led to expectations that the first rate cut from the Fed will come soon. Rick Rieder, BlackRock’s chief investment officer for global fixed income and head of the global allocation investment team, wrote:

“If the PCE price index continues to hold up well in June, then the right conditions are forming for the Fed to gradually cut interest rates by 25 basis points starting in September.”

The article is forwarded from: Jinshi Data