Is the rate cut closer? Powell spoke late at night

Just now, Powell spoke.

Fed Chairman Powell said that the latest economic data showed that inflation is returning to a downward track, and officials hope to see more data before cutting interest rates. He said that he expects inflation to be no more than 2.5% in the next year, and may return to 2% at the end of next year or the year after.

In terms of market conditions, when Powell spoke, gold ushered in a wave of pull-ups, and then fell back; crude oil was on a downward trend.

The Fed needs more confidence to cut interest rates

At the European Central Bank Forum held in Sintra, Portugal at 21:30 Beijing time, Fed Chairman Powell attended and delivered a speech. This was his first public appearance since the Fed meeting in June. He was also present with European Central Bank President Christine Lagarde and Brazilian Central Bank President Roberto Campos Neto. Powell did not give any specific guidance on the timing of the first rate cut, but he expects inflation to be no more than 2.5% in the next year, and may return to 2% at the end of next year or the year after.

Powell said that the latest economic data showed that inflation is returning to a downward track, and officials hope to see more data before cutting interest rates. "Because of the strong U.S. economy and the strong labor market, we have the ability to take our time and get things done," Powell said. "That's what we plan to do."

Since July last year, the U.S. central bank has kept its policy rate in a target range of 5.25% to 5.5% - the highest level in more than two decades. Previously, several Fed officials said that rate cuts require more confidence that inflation is continuing to return to the target level of 2%.

In the first few months of 2024, the Fed failed to further achieve its goals. However, data released by the U.S. Department of Commerce last Friday showed that the U.S. core PCE price index rose 2.6% year-on-year in May, the smallest increase since March 2021, and signs of slowing inflation in the United States became increasingly obvious. Analysts believe that the U.S. economy has shown remarkable resilience against the backdrop of high borrowing costs, but there are signs that the Fed's restrictive policies are having an impact, such as slowing home sales, rising delinquencies, and slowing consumer spending.

Powell said the labor market has achieved a "substantial" balance between labor supply and demand, and U.S. wage growth has fallen back to a more sustainable level. Wage growth is still higher than the level when equilibrium is finally reached, and the labor market is cooling.

The Chicago Mercantile Exchange's "Fed Watch" data shows that the probability of the Fed keeping interest rates unchanged in September has dropped from 45.2% a month ago to 32.8% now. The probability of keeping interest rates unchanged in December has dropped from 15.0% a month ago to 5.4%.

The market generally expects the Fed to cut interest rates for the first time at its meeting on September 17-18 by a quarter percentage point. However, whether the Fed will eventually cut interest rates according to this schedule or postpone the cut will depend on the upcoming employment and inflation reports, including the June monthly employment report released on Friday and the June consumer price index released on July 11.

While the timing of the first rate cut may have little impact on the larger economic results sought by the Fed, policymakers are aware of the risks of maintaining tight monetary policy for a long time - if the economy slows too much or too fast, the current low unemployment rate will be at risk - and they are also sensitive to the signals sent by rate cuts.

Mary Daly, a member of the Federal Reserve's FOMC and president of the San Francisco Fed, said last week that if inflation remains stable or falls slowly, interest rates will need to remain high for longer. If inflation falls or changes occur in the labor market, the Fed can adjust its policies in a timely manner. Current data show that inflation is cooling down and the policy effect is in line with expectations.

US JOLTS job vacancies unexpectedly rebounded in May

Before Powell's speech, the US Bureau of Labor Statistics released a report on Tuesday showing that the US JOLTS job vacancies in May were 8.14 million, expected to be 7.95 million, and the previous value of 8.059 million in April. Both hiring and layoffs increased, indicating that the job market is turbulent. The resignation rate remained unchanged. As Powell said that labor demand is gradually slowing, US job vacancies rebounded in May, breaking the downward trend for several months.

Specifically, the increase in the number of job vacancies in May was driven by manufacturing, government and health care, and the number of job vacancies in accommodation and food services led the decline in all industries. The rebound in hiring was mainly driven by professional and business services and construction. Business services were also the industry with the most layoffs, suggesting that more people are changing jobs. Overall, the South accounted for most of the increase in layoffs.

The JOLTS report was one of the labor indicators that Treasury Secretary Janet Yellen valued most when she was the chair of the Federal Reserve. This indicator is also a labor market data that the Federal Reserve pays close attention to. However, it should be noted that some economists question the reliability of JOLTS statistics because the current response rate for the survey is very low, about half of what it was a few years ago.

Economists expect this trend to continue before the release of the employment report on Friday. The employment report is expected to show that employers added about 195,000 jobs in June and the unemployment rate fell to 4%. "The unemployment rate of 4% is still very low," Powell said today.