Fed Chair Powell Emphasizes Inflation Progress, but Urges Patience
Speaking at a central banking forum in Portugal, Powell acknowledged significant progress in bringing inflation down towards the Fed’s 2% target. However, he stressed the need for more evidence before initiating rate cuts, stating, “We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”
Powell’s comments come as the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, rose at a 2.6% 12-month pace in May, down from around 4% a year ago. Despite this improvement, the Fed does not expect inflation to reach its 2% goal until 2026.
Market Expectations Adjust to Fed’s Stance
Market expectations for rate cuts have shifted dramatically since earlier this year. Current pricing suggests two quarter-point reductions in 2024, down from previous expectations of six cuts. The Fed’s own projections indicate just one cut this year, highlighting the gap between market hopes and central bank guidance.
Job Market Remains Robust
The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS) revealed stronger-than-expected employment opportunities in May. Job openings increased to 8.14 million, surpassing the 7.9 million forecast. The ratio of openings to unemployed workers stood at 1.2 to 1, indicating continued labor market tightness.
Sector and Stock Performance
The consumer discretionary sector led gains, rising 1.17%, buoyed by Tesla’s strong performance. Tesla shares jumped nearly 9% after reporting better-than-expected second-quarter deliveries of 443,956 vehicles.
