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Look forward to July 8 week: Powell’s semiannual monetary policy testimony could signal if a rate hike is closer — or not

The July 8 week puts front and center the Federal Reserve in general and Chair Jerome Powell in particular.

On Tuesday, July 9 at 8:45 ET, Powell will give opening remarks via video conference to the Boston Fed’s Conference “Stress Testing: A Discussion and Review”. Vice Chair for Supervision Randal Quarles will give the keynote speech at 14:00 ET.  The occasion probably won’t address monetary policy, but the subject is one that Powell and Quarles have covered extensively previously. This will be a chance for them to highlight Fed efforts to tailor regulation to fit the size of the institution and balance that against the need for a safe and sound financial system.

Markets were eagerly awaiting the release of the minutes of the June 18-19 FOMC meeting top parse these for hints about the depth of the split among policymakers regarding the possibility and need for a rate cut. The minutes are set for release at 14:00 ET on Wednesday, July 10. However, Powell is likely to steal any thunder the minutes might contain.

Powell is scheduled to give the semiannual monetary policy testimony before the House Financial Services Committee at 10:00 ET on Wednesday and the Senate Banking Committee at 10:00 ET on Thursday. If the usual practice is followed, the House committee will release the Chair’s prepared remarks at 8:30 ET on Wednesday. Powell is expected to lay out the case that the economy is in decent shape even as risks to the outlook are heightened. Markets will be anxious to read into his statement that a rate hike is on the way, preferably as soon as the July 30-31 meeting. Absent an exogenous event that adds to the risks to the outlook, I think he will reiterate in some form that monetary policy is not on a preset path, that no decision is made until the actual meeting, and that reduced tensions in financial markets and the prospect of continued trade talks reduces the necessity for an “insurance” rate cut. I think he is more likely to signal that the FOMC is prepared to wait on events and greater clarity before adding unwarranted accommodation.

Please see the Whetstone Analysis comment from July 1 on the timing of the Chair’s testimony.

Also on the calendar is New York Fed President John Williams who will be touring his District and speaking about the regional economy on Thursday. He will likely get peppered with questions about a possible rate cut. However, he is probably on the cautious side of the argument.  St. Louis Fed President James Bullard is scheduled to appear on Tuesday and Wednesday where he can be expected to make his case for a rate cut. Again.

It is a light data calendar for the week and little is of market-moving potential. Nonetheless, data on inflation will help inform the outlook for the FOMC meeting later in the month. The June Consumer Price Index at 8:30 ET on Thursday and the Final Demand Producer Price Index on Friday at 8:30 ET should point to core inflation continuing along the lines of the Fed’s 2% objective. At the headline, the data could be a bit noisy with the rapid declines in gasoline prices in June. The other thing to look out for in consumer prices is an increase in the “other goods” category where tobacco prices are probably rising in advance of higher taxes on cigarettes in Illinois and Vermont. The actual tax increase doesn’t take effect until July, but it is typical for the increase to start showing up a month earlier.

The Atlanta Fed’s Business Inflation Expectations for July will give a sense of how close inflation is expected to trend relative to the Fed’s 2% objective. The BIE held at 2.0% in May and June and indicated that businesses think inflation is going to trend near objective.

The NFIB Small Business Optimism Index may give back some of that 2.5 point increase in May when the June data is released. Last month the prospect of a resolution on trade and tariff issues helped boost confidence, this month the lack of one could cut into optimism. Nonetheless, the index should remain elevated in the historical context.

The data on Job Openings and Labor Turnover (JOLTS) for May will lag the Employment Situation by a month. What it should tell us is that while the levels are down a bit, the rate of job openings, hiring, and separations all remain consistent with a labor market with little slack and workers participating in a vibrant job market.

Initial jobless claims may sound a bit noisy in the week ended July 6. This is the time of year – the first two weeks of July – that automakers usually close factories for retooling and their suppliers often find this a convenient time for some short-term layoffs as well. However, production of motor vehicles has been slower and some of the annual maintenance work may have already been completed. There might be fewer layoffs than anticipated by the seasonal adjustment factors. For the next few weeks, the four-week moving average may be a better gauge of underlying conditions.

 

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