Federal Reserve Chair Jerome Powell will commence his semi-annual testimony to Congress on Tuesday, a critical event that could influence market expectations for a September interest-rate cut. Market participants are pricing in the likelihood of two rate cuts this year, with a 70% chance of the first cut in September, according to swaps data.
Powell is under pressure from lawmakers—some pushing for rate cuts to stimulate the economy, and others expressing discontent with the Fed’s recent plan to increase capital requirements for Wall Street banks. Given the recent indicators of softer economic growth and a cooling labor market, investors will scrutinize Powell’s remarks for any signals on the timing of rate cuts. Dovish comments from Powell could further elevate market pricing for a September cut and potentially weaken the US dollar.
Adding to the economic narrative, a survey from the Federal Reserve Bank of New York revealed that US consumers’ near-term inflation expectations declined for the second consecutive month in June. Americans have lowered their outlook for home prices and the cost of other goods, which could influence the Fed’s policy decisions.
In the commodities market, oil prices remained steady after a two-day decline, as Hurricane Beryl appeared less likely to disrupt crude infrastructure in Texas. Meanwhile, gold prices stabilized following a significant drop on Monday, the largest in two weeks.
Powell’s testimony, along with the latest inflation data and labor market trends, will be crucial for shaping the market’s outlook on the Fed’s monetary policy trajectory.