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Powell still looking for more progress towards inflation goal

Federal Reserve (Fed) Chair Jerome Powell said Tuesday that the central bank is still waiting for more data to strengthen confidence that inflation is returning to its 2% target before it is willing to cut rates. On a more positive note for markets, he mentioned that the Fed was also concerned about lowering interest rates too late, which could have a negative impact on the economy. Stocks in New York barely moved on Tuesday, however, after reaching new highs multiple sessions in a row.

Shane Strowmatt, LGT
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5 minutes
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Powell said in his testimony before the Senate Banking Committee that the US economy is no longer overheated and is returning to normality after the extremes of the pandemic era. He also noted that the Fed is also taking measures to ensure that it doesn’t lower interest rates too late, as that could have a negative impact on the labour market. The median projection of 19 officials at the Federal Reserve's June meeting suggested a single quarter-point rate cut by the end of the year. Since then, however, labour market data has appeared weak with the unemployment rate ticking up to 4.1% while continuing jobless claims increased for a ninth week in a row two weeks ago. Headline inflation was at 3.3% on an annual basis in May, still well above the Fed’s 2% target.

In New York, Powell’s comments weren’t sufficient to move markets much after the S&P 500 and Nasdaq indices had already seen multiple all-time highs last week and this week. The Dow Jones Industrial lost 0.1%, while the S&P 500 and Nasdaq-100 each closed 0.1% higher.

China struggles to revive inflation

In China, the Consumer Price Index came in softer than expected, rising 0.2% in June. The Producer Price Index remained in negative territory, falling 0.8% after dropping 1.4% in May. China has been struggling to revive consumption after its long-awaited reopening failed to meet market expectations last year despite multiple stimulus measures by the government. Problems in the real estate sector as well as concerns about the labour market have pressured consumers. Hong Kong's Hang Seng Index was trading 0.3% lower, while the CSI 300 was down 0.2%.

Japanese wholesale inflation meets market expectations

Elsewhere in the Asia-Pacific region, stock markets were trading mixed midweek. Japan's wholesale inflation gained momentum in June due to the weakening yen, resulting in higher costs for imported raw materials. The corporate goods price index, which measures inter-company pricing, showed a 2.9% increase in June when compared with the same period a year earlier, in line with market expectations. The Bank of Japan (BOJ) will take the data into consideration along with other factors at its upcoming policy meeting at the end of the month. The Nikkei 225 was trading 0.5% higher. In South Korea, the Kospi was essentially flat and Australia’s S&P/ASX 200 was down 0.2%. In New Zealand, the Reserve Bank of New Zealand kept its cash rate unchanged at 5.5%, in line with market expectations.

Corporate and macroeconomic calendars

Corporate news in focus: There is no major corporate news scheduled today.

Economic data in focus: Second day of Federal Reserve Chair Jerome Powell’s semiannual monetary policy report before US Congress.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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