With recent data suggesting the US economy remains in good shape as inflation slows and the labour market softens, there is widespread expectation the central bank will finally start unwinding its long-running programme of tight monetary policy next month
Asian investors were careful on Tuesday after the latest rise in optimism fuelled by hopes Fed chair Jerome Powell will signal an interest rate cut in a highly anticipated speech to central bankers this week.
With recent data suggesting the US economy remains in good shape as inflation slows and the labour market softens, there is widespread expectation the central bank will finally start unwinding its long-running programme of tight monetary policy next month.
The focus is Powell’s remarks to the annual symposium of central bank leaders and financiers at Jackson Hole, Wyoming (US), which is seen as a possible launchpad for the Federal Reserve’s rate-cut cycle.
Bets have soared that officials will reduce rates 25 bps next month – with some even flagging 50 points – followed by two more before the end of the year.
Powell raised hopes for a move at the bank’s most recent meeting when he said it could come as soon as September, having previously said the policy board did not need to wait for inflation to drop to its 2% target before lowering rates.
All eyes and ears are tuned in, eagerly waiting to see if he will give a wink of confirmation to the current market pricing, according to independent analyst Stephen Innes.
The market is positioning his remarks to be more consequential than usual, hoping for a dovish signal that sets the stage for the policy board to cut in September, he said in his Dark Side Of The Boom newsletter.
However, he said: But do not expect Powell to spill the entire rate-cut enchilada just yet. With one more non-farm payrolls report to navigate, the decision between a 25 or 50bp cut in September is still up in the air, poised to be the opening act in a multi-rate-cut storyline.
Two top Fed players provided support for a cut.
San Francisco Fed chief Mary Daly told the Financial Times she had more confidence inflation is being tamed following recent data.
Her colleague at the Minneapolis Fed, Neel Kashkari, said in the Wall Street Journal that the prospect of a weaker labour market made talk of a cut appropriate.
All three main indexes on Wall Street ended higher, with the S&P putting on 1% and the Nasdaq 1.4%.
Asian investors are a little more cautious.
Tokyo rallied 1.7%, clawing back almost all of Monday’s losses, while Sydney, Seoul, Singapore, Taipei, Manila and Jakarta were also higher.
However, Hong Kong and Shanghai struggled to build on their recent advances, while Wellington also declined.
