Lately, no one has received more attention from Trump than the Fed Chair, and not in a flattering way. Every mention was a complaint: too slow to ease the monetary policy and a not-so-subtle demand to fall in line. Finally, judging by Powell's dovish speech in Jackson Hole, the pressure seems to have worked.
While he previously said that the regulator was in a position to wait, as the economy remains strong, last week Powell almost explicitly pointed to the possibility of rate cuts, citing weakness in the labor market as the main reason. To put this in context, full employment in the US is one of the Fed's two core mandates.
The markets reacted accordingly. Big tech stocks, which had been under pressure following comments from OpenAI’s Sam Altman that investors may be overly confident in AI, bounced back. The Dow Jones climbed to a new record high, while the S&P 500 came close. The dollar index, meanwhile, slipped again.
The tricky part is that while the labor market shows signs of weakness, inflation isn’t easing: in July, the US producer price index (PPI) rose 0.9%, well above the expected 0.2%. These stronger-than-expected numbers suggest inflationary pressures may still be building in the economy due to trade wars.
Let's see what the July PCE data, the Fed's preferred inflation indicator, shows when it is released on Friday. A high figure will not necessarily prevent the Fed from cutting rates in September, but it could lead to more modest or cautious measures in the future, dampening investor optimism.
Overall, the risk of stagflation (slowing growth coupled with rising inflation) is becoming increasingly pronounced, which is not good news for the Fed. Still, the markets do not seem to believe the worst. Stocks continue to rebound, and cryptocurrencies are following suit, with ETHUSD reaching new all-time highs.
Looking ahead to this week, with much of the optimism surrounding a September rate cut already priced in, attention turns to Nvidia's quarterly results on Wednesday. If the company beats forecasts again and, more importantly, offers an upbeat outlook, the market could experience another wave of optimism.
But if it does not, stocks could suffer a correction similar to last week's decline triggered by Altman's warning of a possible “bubble” in large digital tech companies, reminiscent of the dot-com bubble burst. A hotter-than-expected PCE report on Friday could also dampen sentiment, punishing Nasdaq and the S&P 500.
This article was written by IL Contributors at investinglive.com.from Investinglive RSS Breaking Education Feed https://ift.tt/VLT38fv
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