The US Federal Reserve (Fed) may cut interest rates in September. Recent economic data and comments from Jerome Powell have reset expectations about this.

Labor market figures have softened slightly, and inflation appears to be under control. At least according to him. Powell gave a routine testimony before the US Senate on July 10 and said:

“The Federal Reserve remains focused on our dual mission of promoting maximum employment and stable prices for the benefit of the American people.”

Fed Chairman Jerome Powell

Over the past two years, US inflation has moved closer to its 2% target. He believes the economy remains strong and is expanding at an impressive rate, although growth so far this year has not been as strong as in 2023.

Domestic demand remains strong, of course, and consumer spending and capital investment have slowed somewhat. Investment in housing has also increased this year.

The unemployment rate rose slightly to 4.1% in June, with employment increasing by an average of 222,000 jobs per month in the first half of 2024, thanks to higher labor force participation and increased strong increase in immigration.

Personal consumption expenditures (PCE) prices rose 2.6% in the 12 months before May. Base PCE prices (excluding food and energy) also increased about 2.6%. But according to monthly indicators, progress has not been impressive. Powell told the Senate:

“To support these goals, the Committee has maintained the target range for the federal funds rate at 5-1/4 to 5-1/2 percent since last July, after tightening tightened monetary policy significantly over the previous year and a half. We also continue to reduce our securities holdings.”

PCE differs from CPI in three main ways. The PCE places less emphasis on housing costs, measures health care costs more comprehensively than the CPI, and accounts for changes in consumer behavior as prices rise.

The Fed will certainly lower interest rates in the near future if inflation continues to slow, but the US central bank probably won't cut as much as Wall Street expected a year ago. The reason is because the neutral interest rate has increased. The neutral interest rate is the common rate when inflation and unemployment are near optimal levels, so the Fed does not need to raise or lower interest rates.

The Fed continues to make decisions one meeting at a time. Powell repeated his claim that cutting interest rates too soon or too much would stall or even reverse the little progress he has made on inflation.

And cutting interest rates too late or too little will weaken economic activity and employment. He promised to continue evaluating the data and find the best way to balance risks and steady growth.

Powell's speech did more than calm Congress. It also spread to the cryptocurrency market. QCP Capital believes softer CPI data will force Powell to cut interest rates in September, or immediately after the November election.

At press time, Bitcoin is priced at $57,770, and Ether is priced at $3,122.

Source: https://tapchibitcoin.io/kha-nang-fed-cat-giam-lai-suat-vao-thang-9-tang-cao.html