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What Powell Could Say Over the Weekend

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In a somewhat unusual bit of scheduling, Fed Chair Jerome Powell is expected to make an address on Sunday, when the markets are closed. That could give traders some pause as they set up for the weekend. With so much riding on when the Fed will move towards easing, it’s natural to worry about what Fed Chair Jerome Powell might say.

He’s scheduled to give the Commencement speech at the University of Georgetown’s law faculty, so the address itself isn’t expected to generate much in the way of monetary policy waves. But a public appearance is an opportunity for questions and off-the-cuff remarks which could be parsed for significance about interest rates.

Holding the Line

The thing is, though, Powell has been pretty consistent with his views over the last several months. Indeed, so has much of the FOMC. The market moves in reaction to his comments haven’t been because he’s changed his position, so much as how it relates to the recent series of data. Which actually makes it easier to predict how the market will react to what he’ll say, since Fed Chair Jerome Powell isn’t expected to deviate from the script.

For example, earlier this week, US purchasing price index (PPI) figures for April came in hotter than expected. The market reacted in consequence, with equities falling and bonds rising. Then Powell gave a speech in which he essentially said the same thing as previously, and the market then reversed in reaction. That was because the market discounted the potential effects of the price pressures, as it was interpreted that Powell didn’t see a problem with the data.

Time for a Reversal?

Since then, there has been another batch of inflation figures, with Wednesday’s headline CPI change coming slower than expected. This was seen as a reversal of the months-long upward trend in inflation. As a result, the market regained its confidence in the proximity of rate cuts, with a consensus growing around the idea that the Fed will start easing in September.

This dovish shift in the market will likely not be reflected by Powell if he gets around to talking about monetary policy. His line so far has been, essentially: We’re going to cut next, but we’re not convinced about the trend yet. We need more data. In light of the reversal in inflation trends as reported just a few days ago, Powell sticking to that very same script could be interpreted as hawkish. That would be in contravention to those very same comments being seen as dovish on Tuesday.

Where Things Go From Here?

Powell will also be getting extra attention this time around, because pretty much the entirety of the FOMC will give speeches next week. The bulk of that will be on Tuesday, mostly in university settings, just like Powell’s Georgetown appearance. So, investors are likely looking to see if there is any indication of the tone to expect over the coming week from the group of people that Powell chairs.

But, again, the main theme from FOMC members has been essentially that there needs to be more time and data before coming to a firm conclusion about rate cuts. That might bring markets a bit back down to reality after the new record highs this week. Unless there is a major surprise from one of the members, of course.

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