“Boost Confidence in 2nd Quarter Data Unlike 1st Quarter”
“Maintain balance between price stability and maximum employment..considering both”
2-year treasury yields drop…long-term increases due to Trump concerns
Dovish remarks…0% chance of Fed freeze in September, ‘[New York=Edaily Kim Sang-yoon Correspondent] Jerome Powell, chairman of the Federal Reserve, said on the 15th local time that the Fed will not wait until inflation reaches 2% to cut interest rates. He evaluated that recent second-quarter economic indicators have increased confidence that inflation is falling towards the Fed’s target of 2%.’,
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, ‘Powell said in a speech at the Economic Club in Washington, D.C. on that day that the Fed’s policy operates with “long and varied lags.”‘,
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, ‘He said, “If we wait for inflation to fall to 2%, it’s too long to wait,” and explained, “Because the current tightening level is still having the effect of pushing inflation below 2%.”‘,
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, ‘Powell also said, “We are getting some better data that boosts confidence in inflation, with recent signs of inflation slowing down.” He added, “While we did not gain additional confidence in the first quarter, the figures from the second quarter, including last week’s data (Consumer Price Index), seem to add some confidence.”‘,
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, ‘He further stated, “Now that inflation has decreased and the job market has indeed cooled down,” and said, “We will consider both obligations: price stability and maximum employment. Both are much more balanced.” Powell has repeatedly emphasized that “inflation is not the only risk facing the economy” and that the Fed’s policy focus may gradually shift from price stability to employment promotion.’,
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, ‘However, he saw the possibility of a hard landing for the U.S. economy as low. He emphasized, “A hard landing is not a likely scenario.”‘,
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, ‘Powell’s speech that day came after the Consumer Price Index in June showed a consecutive two-month decline. In June, the CPI rose by 3.0% compared to the same month last year, the lowest level in over three years. It also fell below market expectations (3.1%). On a monthly basis, it fell by 0.1%, also significantly below market expectations of 0.1% increase.’,
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, ‘The core CPI for June also fell below expectations, rising by 3.3% compared to the same month last year, below the market forecast of 3.4%. It is the lowest level since April 2021. The three-month increase rate has fallen to 2.1% on an annual basis, almost approaching the Fed’s target (2%).’,
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, ‘Powell reiterated that the Fed does not intend to send any signals about when they will start cutting interest rates. The Fed is expected to hold its Federal Open Market Committee (FOMC) at the end of this month and discuss fiercely whether to cut rates in September with committee members.’,
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, ‘With Powell’s dovish remarks, short-term treasury yields sensitive to Fed policy fell to as low as 4.415% at one point, moving from 4.457%, down 0.1 basis points (1 basis point = 0.01%) as of 4:40 p.m. However, long-term treasury yields are showing strength. This is due to increased uncertainties about Trump’s re-election after the weekend shooting. President Trump has pledged economic policies that include raising tariffs and tax cuts, which raises concerns that inflation could rebound in the long run, increase deficits through increased Treasury issuance, and push up Treasury yields.’,
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, ‘The 10-year treasury yield is trading at 4.23%, up 4.4 basis points from the previous trading day, while the 30-year treasury yield is trading at 4.458%, up 5.8 basis points. As a result, the “yield curve inversion,” where 2-year yields surpass 30-year yields, has been resolved for the first time since the end of January. The spread between 2-year and 10-year yields has also narrowed to about 22 basis points. Long-term interest rates, which reflect future economic conditions, are typically higher than short-term rates, and a yield curve inversion is interpreted as a signal of an impending economic downturn. However, some argue that this predictive formula has been broken recently due to numerous variables affecting the bond market.’,
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, ‘Fed Watch also reflected a 0% chance of a rate freeze in September with Powell’s dovish remarks.’,
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