Next Monday, Powell will give a public speech at the Washington Economic Club. This will be the last speech before the Fed officials enter a silent period.
The unexpected drop in US CPI data in June may shorten the Fed's "last mile" fight against inflation to the final sprint, boosting policymakers' confidence that they are winning the battle and paving the way for rate cuts in the coming months.
The CPI data fell 0.1% last month, the weakest monthly reading since the early days of the pandemic in May 2020, after being unchanged in May, and rose 3% year on year, the lowest increase in the past year.
Policymakers expect to maintain the policy rate at 5.25%-5.5% at the July 30-31 meeting, but they may reset the timetable for rate cuts given the easing of price pressures.
After July, the next Fed policy meeting will be held in mid-September. Traders quickly responded to Thursday's data, with a 90% chance of a rate cut in September, up from about 70%, and expectations of a second rate cut brought forward to November, with a 50% chance of a third cut before the end of the year.
JPMorgan and Magellan Bank have brought forward their expectations of their first rate cuts from November and December respectively to September.
"Dovish" people have reason to cut interest rates in July or even earlier, according to Neil Dutta, chief economist at Renaissance Macro Research.
He added that while a rate cut in July may be too sudden, as the Fed likes to "leak" ahead of time to give the public time to adjust, supporters of a rate cut "should not give up the possibility of a rate cut in July unless Powell sends a strong signal about a rate cut in September".
Omair Sharif, president of Inflation Insights, said monthly housing inflation slowed to 0.2%, the weakest since August 2021. This "is obviously the most important development" because Fed officials have been confident that the slowdown in housing costs would not prompt action until there is evidence in official data.
However, today's released PPI data exceeded expectations, which may pour cold water on the gradually heating rate cut sentiment.
On Monday, Powell will deliver a public speech at the Economic Club of Washington, an important platform to share how the Fed interprets the latest round of inflation. Fed directors Waller, Quarles and Bowman also plan to speak next week, the last communication silence period before Fed officials enter the policy meeting on July 20.
People will be particularly interested in any changes the Fed may make to its July policy statement, and whether officials will decide to stop calling inflation "high."
Edited by Jeffrey