A Report by CYS Global Remit Counterparty Sales & Alliance Unit
This week, Federal Reserve Chair Jerome Powell will present his semi-annual economic report to Congress. As the Fed maintains its current rates during the presidential campaign, Powell is expected to face tough questions from both political parties.
Key Points:
Labour Market: Concern is growing that high rates could slow employment too much, though inflation risk remains if rates are cut prematurely. There is optimism for a rate cut in September.
Current Economic Situation: The U.S. economy continues to grow steadily, though GDP growth has slowed. Consumer spending, capital spending, and residential investment have increased. The labour market is strong but not overheated, with a slight rise in the unemployment rate to 4.1% in June.
Inflation: Although inflation has decreased, it remains above the Federal Reserve’s long-term goal of 2%. Recent data shows modest progress toward this goal.
Monetary Policy: The Federal Reserve has kept the target range for the federal funds rate at 5.25% to 5.5% and continues to reduce its securities holdings. Rate cuts will only be appropriate once there is confidence that inflation is sustainably moving towards the 2% target.
Future Moves: Powell indicated that a rate increase is unlikely to be the next move. The Fed will consider loosening policy at the right moment, balancing the risks of moving too slowly or too quickly on rate cuts.
Powell’s Statements to Congress:
Economic Growth: The U.S. economy shows robust private domestic demand and moderate growth in key areas.
Labour Market: Conditions have returned to pre-pandemic levels, with strong job creation and increased labour force participation.
Inflation: Both total and core personal consumption expenditures (PCE) prices have risen by 2.6% over the past 12 months. Recent readings show modest progress toward the 2% target.
Conclusion:
The Federal Reserve remains committed to reducing inflation to its 2% goal while maintaining strong economic activity and employment. Decisions will be made carefully, assessing incoming data and potential risks. The focus will be on restoring price stability to achieve long-term economic goals
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