Response to Fed Chair Powell testimony – Bank of America stick with June rate cut call

A snippet from Bank of America analysts on Powell’s two days of testimony.

  • Powell … said that significant progress has been made on reducing inflation and the Fed has “some confidence” that inflation will converge to 2%. He said that “a little” more data is needed to give them more confidence and that Inflation data need not get better for the Fed to cut. It simply needed to be more of the same.
  • In response to a different question, Powell said “a little more evidence” that inflation was sustainably returning to the Fed’s target was all that was needed for the committee to cut rates. He also said the Fed would not wait until inflation had reached 2% but would act in advance of inflation getting to this point.

BoA concludes (bolding is mine):

  • A June cut remains a reasonable base case
  • Overall, we would not call Powell’s remarks dovish, but if his word choice was intentional then the bar to reducing rates does not appear exceptionally high. In our view, it is reasonable to keep June as the base case for the first policy rate cut.
  • Powell could have been more hawkish and emphasized concerns about a re-acceleration in the economy and inflation, which would have reduced the likelihood of a June start to the easing cycle. About as far as he would go in this direction was to say that the strength in the economy required “careful” assessment before policy is eased.

Markets are pricing around 90% for a June rate cut.

This article was written by Eamonn Sheridan at Source