The US Federal Reserve's policy is becoming increasingly dovish, as demonstrated by yesterday's speech by Powell and Bostic.
As expected, the speech by US Federal Reserve Chairman Powell did not cause significant volatility in the markets. BUT this time, unlike last Thursday, he did comment on monetary policy and said a lot of important things (although mostly not new).
The main conclusion that can be made is that now the markets can only be unhappy with the rate of interest rate reduction. There is no talk of any pauses or increases. The cycle of reduction has started, it is stable. This means that the key data for the markets in the coming months will be US macroeconomic data, which allow us to draw conclusions about the risks of recession. Everything from the labor market and production indices to industrial production and construction.
Powell's key points:
- The Fed is in no hurry to quickly reduce rates and will be guided by incoming macro data. A sharp change in the indicator, as last time, is not required. The Fed will not "aggressively" reduce the interest rate.
- The 0.50 percentage point rate cut reflects growing confidence that the appropriate recalibration of monetary policy can support labor market resilience and the disinflation process.
- Decisions on interest rates will be made from meeting to meeting.
- If the economy develops as expected, this will mean two more cuts this year for a total of 0.5 percentage points.
- Over time, the Fed's monetary policy will shift toward a more neutral stance if the economy develops as expected.
- Inflation is on a steady path towards the 2% target. Disinflation is broad-based, with recent data pointing to further progress towards a sustainable return to the target level.
- There are risks associated with both inflation and the labor market.
- Working conditions are stable, the labor market is in balance. It is stable, but it has really cooled down.
- The labor market can provide a more accurate picture of the state of the economy in real time than GDP.
- The US economy is in a stable state and we intend to support it.
- There is nothing to suggest that a recession is more likely now.
- We have made significant progress towards restoring price stability without a painful rise in unemployment.
- The level of job creation may not be sufficient to maintain the unemployment rate in light of the growing supply.
- Housing inflation will decline as long as the rate of rent growth for new tenants remains low.
US Federal Reserve member Raphael Bostic (with dovish rhetoric and decisive voting rights) said that he is open to another interest rate cut of 0.5 percentage points in November of this year.
