What is expected from Fed Chair Powell's speech?

Fed Chair Jerome Powell's speech next week will be closely scrutinized by investors seeking clues as to how long the Fed is willing to wait before cutting interest rates.

WHAT HAD HE SIGNALED PREVIOUSLY?

In his last speech, the U.S. Federal Reserve Chair signaled that policymakers might keep borrowing costs high for longer than previously anticipated, pointing to a lack of further progress in lowering inflation and the persistent strength of the labor market.

With expectations for a strong employment report to be released on Friday, recent price data showing the stubborn foundations of inflation are unlikely to cause the Fed Chair to change his mind.

WHAT IS EXPECTED?

Powell will speak to reporters after the Fed's interest rate decision on Wednesday, where the central bank is expected to keep borrowing costs at their highest level in more than two decades. Expectations for an interest rate cut have been pushed back to 2024, and investors are now focusing on at most two rate cuts by the end of the year.

The final data of the week will be the monthly jobs report, which offers a new look at the state of the U.S. labor market. Economists believe that non-farm payroll growth slowed to a still-strong pace in April, amid steady and low unemployment.

Bloomberg Economics commented, “We expect Powell to make a hawkish pivot. At the very least, he will note that the average FOMC participant now expects 'fewer' cuts this year. With a more hawkish approach, he could hint at the possibility of no cuts at all, or even suggest that a hike could be on the table, even if it is not the current baseline.”

News Source: 12punto