On May 14, 2024, Fed Chair Jerome Powell was speaking to the Foreign Bankers’ Association in Amsterdam.
His comments followed the release of PPI report, which indicated that PPI increased by 0.5% month-over-month in April. Core PPI grew by 0.5%, compared to analyst consensus of +0.2%.
When asked about PPI data, Powell noted that the report was mixed. Powell highlighted revisions of the previous report. March PPI was revised from +0.2% to -0.1%, while Core PPI was revised from +0.2% to -0.1%.
Fed Chair Powell expects solid growth, strong labor market and a reduction of inflation, although his confidence in the inflation picture has declined.
Talking about the next step in Fed policy, Powell noted that current interest rate environment may last longer than previously expected. However, it was unlikely that Fed would raise rates as its next policy move. According to Powell, a rate cut was a more likely scenario.
Jerome Powell believes that current policy rate is restrictive by many measures. However, Fed needs more time to evaluate whether it is sufficiently restrictive.
Powell was also asked about U.S. debt and U.S. fiscal policy. He thinks that U.S. fiscal policy is on unsustainable path. At this point, the problems of U.S. fiscal policy do not have a material impact on Fed decision making.
U.S. Dollar Index pulled back as traders reacted to PPI data and Powell’s comments. Currently, U.S. Dollar Index is trying to settle below the 105.00 level. Treasury yields are moving lower as traders bet that Fed would not raise rates.
Gold has recently settled above the $2350 level. U.S. dollar’s pullback and falling Treasury yields provided support to gold markets.
SP500 settled near the 5225 level as traders have quickly bought the pullback after the release of PPI data and welcomed Powell’s dovish comments.
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Vladimir is an independent trader and analyst with over 10 years of experience in the financial markets. He is a specialist in stocks, futures, Forex, indices, and commodities areas using long-term positional trading and swing trading.