Powell shifts to more dovish stance

As expected, the US Federal Reserve raised its benchmark interest rate by 75 basis points at the July FOMC meeting.Although such a decision came as no surprise, Fed Chair Jerome Powell made some unexpected comments during the press conference.

Shift in Powell’s tone:

In fact, the chairman’s remarks had a more dovish tone than at the previous press conferences regarding rate hikes held this year.

Although Powell said that the Fed would continue to take data-driven decisions, he added that the central bank could slow rate hikes in the months ahead. However, he did not give any specific time frames.

In connection with today’s release of the second-quarter GDP growth report and preliminary estimates from the Atlanta Federal Reserve that suggested an economic contraction of 1.6%, Chairman Powell focused on the current economic outlook.

“I do not think that the U.S. is currently in a recession, and the reason is there are just too many areas of the economy that are performing too well,” Jerome Powell said. To be sure, “growth is slowing for reasons that we understand. Growth was exceptionally high last year, 5.5%. We would have expected growth to slow. There’s also more slowing going on now,” he added.

Besides, preliminary gross domestic product numbers should generally be taken with a “grain of salt,” the head of the US central bank noted.

Today’s macroeconomic calendar includes statistics on GDP for the second quarter. Thus, traders will be able to price in the most recent data on the current economic situation. The US Federal Reserve is not going to hold another meeting until November 2. This means that PCE and CPI reports will be released.

This will allow market participants to take into account additional reports without additional pressure from the upcoming rate hike by the Fed.