Powell continues to "dove": The recent three inflation data are "quite good", no need to wait for it to drop to 2% before cutting interest rates

On Monday, July 15th, around 12:35 PM Eastern Time, Federal Reserve Chairman Powell attended a luncheon at the Economic Club of Washington, D.C., where he had a conversation with David Rubenstein, the chairman of the club and co-founder of The Carlyle Group.

This was his first public speech since last week's CPI inflation cooled more than expected. The Federal Open Market Committee (FOMC) monetary policy decision will be made on July 31st. Officials will enter a quiet period from this Saturday until the Friday after the FOMC meeting, making Powell's and other voters' remarks crucial this week.

Renowned financial journalist Nick Timiraos, known as the "Fed News Agency," stated that Powell's latest speech implied a rate cut, but he refused to disclose a specific time. The Fed led by Powell typically avoids surprising the market with short-term policy decisions, so his comments today did not change the market's expectation of the Fed standing pat in July. Powell said:

"Inflation and economic activity slowing in sync are basically in line with the Fed's expectations. I will not send any signals about any specific FOMC meeting. We will make corresponding monetary decisions at each meeting."

Overall, Powell's remarks remain dovish, stating that the U.S. economy has been doing well in recent years, with the job market entering a better and more balanced state. He specifically mentioned that inflation in the U.S. made more progress in the second quarter this year, with the recent three inflation reports being "quite good":

"The first-quarter economic data did not enhance our confidence in inflation falling to the 2% target, but the three data points in the second quarter, including last week's data, have indeed somewhat strengthened our confidence."

He pointed out that while the Fed is watching the cooling of inflation, it is also starting to pay more attention to potential softness in the labor market. Some analysts believe that recent remarks from several Fed officials are reinforcing this key shift in rhetoric:

"Now that inflation has fallen, and the labor market has indeed cooled, we will consider the dual mandate of maximizing employment and price stability, which is much better balanced. If there is an unexpected softness in the labor market, it may also be another reason for policy action (rate cut)."

Powell also reiterated his remarks from last week's congressional testimony, stating that there is no need to wait for inflation to reach the Fed's 2% target before cutting rates, as that would be waiting too long. Monetary policy effects have a lag, and maintaining rates too high for too long will overly suppress economic development, "the job market does not need to be tighter than before the COVID-19 pandemic."

Other comments from the Q&A session included:

When asked if he would serve as Fed Chairman until May 2026, Powell said, "Yes." Regarding whether he would continue to be appointed as Fed Chairman in the future, he had no comment today. He feels "very happy" about being the Fed Chairman During Powell's speech, the U.S. stock indexes maintained an upward trend, with small-cap stocks rising nearly 2%, leading significantly, the Dow rising over 200 points and both the S&P 500 index hitting new historical highs in early trading. After the Q&A session, the gains of major stock indexes other than small-cap stocks narrowed.

As Powell discussed inflation progress and confidence, the yield on the 10-year U.S. Treasury briefly fell below 4.20% to refresh the daily low. During the speech, it recovered from the short-term decline and expanded to 4.6 basis points after the speech, reaching 4.23%.

The yield on the two-year U.S. Treasury also briefly plunged to a daily low of 4.4154% and turned higher after Powell's speech, approaching 4.46%.

Spot gold rose to a daily high of $2439.75 per ounce at the beginning of Powell's speech, narrowing to a 0.4% increase to near $2420 after the speech, having previously risen 1% before Powell's speech and breaking above $2430.

The US Dollar Index (DXY) initially fell and approached 104 on the first day of Powell's speech, then recovered all losses and turned higher. After the speech, the increase expanded to 0.13%, reaching 104.23. The US dollar against the Japanese Yen rose by 0.1% to return above 158, after briefly plunging to a daily low of 157.19.