Federal Reserve Chair Jerome Powell emphasized a “careful and cautious” approach to interest rate cuts during his recent testimony before Congress. He described the state of the U.S. economy as “terrific,” which clearly conveys optimism about where things are today. Today he impressed upon the markets that he will not countenance any cuts in rates until at least the fall. This position would have a precedent-setting impact on investor confidence in the years to come.
Powell’s words came during a period of high tensions between Israel and Palestine in the Middle East. False reports of a ceasefire breach between Israel and Iran escalated the climate. Under normal circumstances, these types of advances would support increased demand for safe-haven assets, such as the U.S. dollar. The dollar “barely flinched” in reaction to these emerging geopolitical tensions, anecdotally at least pointing to a powerful Rip Van Winkle–esque economic confidence among investors.
As Powell continues his testimony this afternoon, he will likely want to repeat his earlier communications without coming up with earth-shattering ideas. Investors and analysts are obsessively tracking the scheduled release of new economic data and conditions. In particular, they are laser-focused on the most recent Personal Consumption Expenditures (PCE) inflation numbers, due out this Friday. The PCE data represents the Federal Reserve’s preferred index for tracking consumer inflation. Specifically, it will provide important forward-looking cues about inflationary pressures.
First quarterly GDP revises are due out this Thursday. The expectations are that, if and when these changes are adopted, they will not materially change what the market expects. Those revised numbers come out with the May durable goods orders and pending home sales. Needless to say, market participants are salivating for these reports and hope they’ll command considerable headlines. We want to help analysts first understand the story behind these metrics so they can provide critical context on consumer behavior and economic momentum.