Forexlive Americas FX news wrap 9 Jul: Powell’s testimony keeps easing door open for Sept.

Federal Reserve Chairman Powell testified before the U.S. Senate today on Capitol Hill in the first of two testimony before U.S. lawmakers. The Fed chairman will speak before the House of Representatives tomorrow.

During his testimony today, the Fed chairman explicitly said he would not talk about changing the interest rate schedule, though he indicated that it would likely be a rate cut. He described the risks as being in both directions, not just skewed toward inflation. He commented on two occasions that the labor market has slowed. so farBut he believes that employment has not been a major contributor to inflationary pressures.

The president’s comments kept the September cut on the table, and the possibility of two cuts remains a “preferred” possibility (with December pricing in 75%).

Below is a summary of the President’s key points on politics, the economy, inflation, growth and employment.

Politics and decision making:

• The Fed remains committed to its 2% inflation target and to maintaining long-term inflation expectations.
• Decisions on price adjustments will be made carefully, taking into account incoming data, the balance of risks, and appropriate policy paths.
• There are risks of either easing restrictions too late or too little, which could weaken the economy and the labor market, or easing restrictions too early or too much, which could reverse the advance of inflation.
• The Fed will continue to make decisions on a meeting-by-meeting basis, and does not plan to cut interest rates until there is greater confidence that inflation is sustainably moving toward 2%.

Economy:

• The US economy is growing at a steady pace and performing exceptionally well compared to its global peers.
• GDP growth appears to have slowed in the first half of 2024.

Economic inflation:

• Inflation remains above the 2% target, but significant progress has been made towards this goal, with the latest monthly readings showing further modest progress.
• More good inflation data is needed to build confidence in interest rate cuts.
• The current restrictive policy is contributing to the pressure on inflation.

growth:

• The economy has been expanding strongly, but there are significant housing problems that have been exacerbated by the pandemic.
• The Fed’s tighter policy is impacting housing activity, as the best way to address housing supply issues is to lower inflation.

employment:

• The labor market has slowed significantly but remains strong and is now back to pre-pandemic levels to some extent.
• Unemployment rates remain low by historical standards.
• Wage increases, although still high, are now trending towards more sustainable levels.
• The Fed recognizes that the labor market is not a broad source of inflationary pressures now, and aims to balance the risks to achieving its employment and inflation goals.

Additional points:

• The US Federal Reserve is in discussions about possible changes to the final phase of Basel III proposals, and is close to reaching an agreement on these changes.
• Immigration is seen as neutral on inflation in the long run, but it may have short-term effects, particularly on the housing market in certain areas.

With the forex market stabilizing, the Australian dollar ended the day as the strongest of the major currencies, while the Japanese yen was the weakest. The US dollar ended the day with a mixed/modestly higher performance with modest declines against the Canadian, Australian and New Zealand dollars, and gains against the Japanese yen, British pound and euro.