On the evening of May 14, Federal Reserve Chairman Powell gave detailed answers to many questions about U.S. monetary policy, economy, employment and other aspects at an event.
The core of Powell's speech is that raising interest rates is not currently under consideration, while cutting interest rates needs to wait for the opportunity. Regarding the recently released inflation data, he believes that it cannot simply be called "overheating", but shows a "mixed" trend. He clearly hopes that inflation will not rise again and that the market will not read too much into expectations of rate cuts, which may interfere with the Fed's goal of achieving its first rate cut this year.
In particular, whether the continued high temperature of inflation can be cooled down by the US CPI data released tonight seems to still be a challenge. Since June last year, CPI data has been in a relatively stable range, roughly between 3% and 3.7%. The Fed would need to see a significant downward trend before it would be more determined to consider cutting interest rates and potentially act accordingly.
At present, the market generally expects that the CPI growth rate in April will drop slightly to 3.4% from 3.5% last month. If the inflation data is in line with expectations or lower than expected, this will further strengthen market expectations that the Federal Reserve will begin to cut interest rates this year.
At the same time, a large number of bullish bets on the dollar are being withdrawn, according to data from the Commodity Futures Trading Commission (CFTC) for the week ended May 7. Non-commercial speculators, including hedge funds and asset managers, currently hold only about $24 billion in bets on the dollar’s appreciation, the lowest level since early April.
The market is relatively optimistic about expectations of slowing CPI data and U.S. interest rate cuts. However, we still need to remain cautious, because the data pattern in the past year has not been broken yet, and the values announced tonight may bring unexpected changes.
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