CFRA sees 3 clues from Powell’s Congressional testimony about the timing of rate cuts

Market research firm CFRA said it spotted three hints about the timing for interest rate cuts from Federal Reserve Chairman Jerome Powell’s policy testimony this week on Capitol Hill.

Powell appeared before the House Financial Services Committee on Wednesday, wrapping up two days with lawmakers discussing inflation and conditions in the world’s largest economy. Powell on Tuesday said he was “not going to be sending any signals about the timing of any future actions,” during his Senate Banking Committee testimony.

“[We] think he did offer at least three clues,” CFRA Chief Investment Strategist Sam Stovall said in a note Wednesday. He pointed out that traders in the fed funds futures market raised the likelihood of a September rate reduction to near 72% in response to Powell’s testimony.

• 1) Powell said the U.S. economy is no longer “overheated” – the Fed Chair told the Senate lawmakers the economy is essentially where it was before the pandemic hit, with the labor market strong but not running too hot.
• 2) Risks to inflation and employment are more balanced – Stovall said it appears the Federal Open Market Committee is “starting to worry a little more” about a cooling in the labor market
• 3) Powell’s highlighting further softening in the economy and the labor market “could be a reason to cut rates,” said Stovall.

Powell said he and his colleagues want to examine more economic data.

“He will get his wish with CPI and jobless claims on Thursday, as well as PPI and consumer sentiment on Friday,” Stovall said, underscoring that the Fed hasn’t cemented a decision about when it will make its next policy move.

With Powell delivering an overall message that disinflation is progressing, the S&P 500 (SP500)(SPY)(VOO) and the Nasdaq Composite (COMP:IND) closed at record highs Wednesday.

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