CIBC Research discusses its reaction to today's Fed Chairman Powell’s testimony to Congress.
" The Fed Chair had a chance to disabuse markets of the notion that a July rate cut is sure thing, and he didn't take that opportunity. The key sentences in the statement, the ones that focussed on what has happened since the Fed last met, says that "it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted." As well, contrary to what the Fed published in its Monetary Policy Report last week, Powell said that there's a risk that inflation will remain below target on a more persistent basis. Justifying the Fed's prior policies, he argued that the economy did "reasonably well" over the first half, but noted the downdraft in Q2 in some key cyclical sectors (e.g. housing) and the fact that Q1 benefited from gains in exports and inventories that don't tend to persist," CIBC notes.
"All told, nothing in here to warn markets against assuming a July cut is coming, and if tomorrows core CPI readings don't show a reheating, a July rate cut could be a lock," CIBC adds.