Federal Reserve Chair Jerome Powell testified before Congress, providing his semi-annual Humphrey Hawkins testimony. Powell appeared before the Senate on Tuesday at 10 am, followed by a session with the House the next day. Expectations are low for significant deviations from Powell’s usual on-message approach during the Q&A sessions.
The key question is whether he will signal increased confidence that inflation is trending lower. At the recent Sintra conference, Powell hinted in this direction. He noted that recent data shows they are on a better path regarding wages. He highlighted the latest Personal Consumption Expenditures (PCE) data, which indicates significant progress with a year-on-year increase of 2.6%.
“We want to see more progress on inflation,” Powell stated.
Powell’s inflation outlook
“We just want to understand that the levels we’re seeing are a true reading of what’s happening in underlying inflation.” He emphasized the importance of taking their time to get it right, warning that moving too soon could undermine efforts to control inflation.
This does not suggest Powell is ready to signal a rate hike in July, but his tone and answers regarding inflation and employment will be closely watched. Market sentiment reflects a 6% chance of a rate cut by July 31, though this probability increases to 80% for the September 18 decision. Powell’s written testimony is sometimes released the evening before his presentation, which could provide early insights into his stance.
His testimony is highly anticipated as markets and analysts look for cues on the Federal Reserve’s confidence in managing inflation. Powell’s previous comments have shown cautious optimism but stressed the need for more concrete data. His upcoming testimonies will likely clarify the Fed’s approach in the coming months.
