Powell signals rate cut at September FOMC meeting
Summary
Federal Reserve Chair, Jerome Powell, confirmed market sentiment that the economy is moving in the right direction regarding inflation. Although he remained uncommitted to decision specifics, something that has been a staple of Powell’s tenure, he did mention, “The direction of travel is clear, and that the timing and pace of rate cuts will depend on the incoming data, the evolving outlook, and the balance of risks.”
Powell speaks at Jackson Hole
This past Friday, Jerome Powell spoke at the Jackson Hole Symposium, an event hosted by the Federal Reserve Bank of Kansas City. Powell’s highly anticipated speech came on the heels of the minutes release for the July Fed meeting, which revealed the sentiment that many Fed members feel ready to cut rates at the September meeting. Powell’s remarks began with a quick summary of this most recent wave of high inflation, later moving into a discussion on the cooling of the U.S. labor market. Powell referenced the historical 2020 pandemic and multiple actions taken thereafter as major factors in leading inflation to hit its peak of 7.10% in June 2022. Although Powell’s speech was largely a detail on how inflation ramped up following the pandemic, he did offer the market a bit of insight it was waiting for with the quick remark, “The time has come for policy to adjust.”
Equities
Following a large-scale early August sell-off with some market participants calling for an emergency Fed meeting, U.S. stocks have largely recovered with the S&P and Nasdaq ending their eight-day winning streaks early last week. U.S. equities continue to perform well after recent encouraging releases surrounding both slowing U.S. inflation and encouraging consumer spending data. The rebound in stocks combined with slowing inflation has many market participants claiming the “Goldilocks” scenario, a soft landing, is firmly in place. However, one should remain patient as we have seen swings in market sentiment before. As a recent example, a few weeks ago, much of the market was favoring a 50-point cut for September. However, the markets rebounded this week and now most bets are on a 25-basis-point cut for September. Given future expectations of lower rates in either scenario, now could be a good time for firms to hedge and lock in projected rate cuts.
Source: CME FedWatch
The week ahead
The Fed’s preferred measurement of inflation, the Personal Consumption Expenditures Price Index or PCE, releases next Friday. Knowing that PCE is the Fed’s best gauge of inflation, the release will likely influence the outcome of the September Fed meeting. Additionally, both initial jobless claims and consumer sentiment will be released for July late next week.
About the author
-
Amol Dhargalkar
Managing Partner, Chairman
Global Head of CorporatesKennett Square, PA
Amol Dhargalkar is a Managing Partner and Chairman for Chatham’s Board of Directors. He is the Global Head of the Corporates sector and brings over 20 years of experience in derivatives capital markets expertise.
Disclaimers
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
24-0115
