Source: Caijing News Author: Shi Zhengcheng

On Tuesday local time, Federal Reserve Chairman Powell paid a visit to Sintra, Portugal after a year, and attended the European Central Bank's annual policy forum with ECB President Lagarde and Brazilian Central Bank President Campos Neto.

Undoubtedly, the focus of the capital markets is naturally on Lagarde, who launched the interest rate cut last month, and Powell, who is still waiting for the "confidence to cut interest rates" progress bar to charge, what kind of sparks can be produced between the two.

"Progress has been made in reducing inflation."

With a Band-Aid on his nose, the Chairman of the Federal Reserve took the initiative to explain his position on "why interest rates have not been cut."

Powell said that when we sat here last year (June), we could not imagine that there would be great progress in inflation in the next six months. But this year, the situation has become somewhat different. In the first half of the year, the economy and employment remained strong. After a period of stagnation, inflation has now returned to a slow downward trend.

"In terms of the most important interest rate cut action, Powell said:" We have made considerable progress in bringing inflation back to the policy target. The latest data (inflation), and the previous data (slightly smaller), both indicate that we are returning to the path of inflation decline. Before we begin to relax (monetary) policy, we hope to be more confident that inflation is declining and approaching 2%."

According to data released last Friday, the US core PCE inflation in May fell back to 2.6% year-on-year, breaking the previous three consecutive months of sluggishness. This also prompted Powell to praise the "significant progress".

Faced with the host's inquiry "Can interest rates be cut in September?", veteran Powell smirked and said, "I won't give a specific month."

He also emphasized that the Federal Reserve is very clear that if we act too early, it may destroy the good results already achieved. At the same time, if we act too late, it may unnecessarily weaken economic recovery and expansion.

Considering that there are still many economic data coming out before the Federal Reserve's July interest rate meeting (July 30-31) and September meeting (September 17-18), Powell's statement is somewhat expected. At present, the market pricing shows that the probability of the Fed's interest rate cut in September is about 70%.

"Splash" Effect

As the host country, the focus of the outside world on the ECB is the action after the "first cut". According to mainstream expectations, Lagarde should still have about two interest rate cuts this year.

Coincidentally, Tuesday's euro zone inflation data for June (up 2.5% year-on-year) continued the steady decline. Lagarde said that this data is good, but the European Central Bank still believes that the road to declining inflation may still be bumpy until the end of 2024.

As an interesting scene on the scene, the host pointed to Powell and asked Lagarde:"If he keeps holding interest rates, will it be difficult for you to continue cutting interest rates here?"

Powell's face sank, and Lagarde smiled and responded that ECB policy makers would consider the "splash" effect of their colleagues' decision-making around the world, especially Powell's, but ECB policy would still be based on the fundamentals of the euro zone economy.

Avoiding political issues

Regarding the assumption that "Trump may return to the White House", Powell also lightly said that he has not been paying attention to this matter at all.

The chairman of the Federal Reserve emphasized that central bank policy makers should focus on doing their own things, and history will judge everything. He also said that the independence of the Federal Reserve has won the support of both parties in Congress.

Although he avoided talking about politics to the extreme, Powell still mentioned that the US government's current fiscal deficit is very large, and this situation is also unsustainable. In the long run, the United States will inevitably need to take action on this issue, and it would be better to act sooner rather than later.

A Discussion on AI

Regarding the nearly one and a half year global AI trend, Powell also expressed some of his latest thoughts.

He said that seeing the explosive investment boom does create a feeling of "something big is about to happen." AI may replace some jobs and create new ones. For most people, the looming question is whether AI will make them more productive or eliminate their jobs. It's still too early to answer this question. Strictly speaking, the Federal Reserve is not clear on this issue.

Powell also emphasized that the Federal Reserve is currently not using generative AI and has always been cautious about this issue.

Editor/Lambor