Morning Market Brief: July 3, 2024

No set timing on a Fed rate cut 

At a forum in Europe yesterday, US Federal Reserve Board (Fed) Chair Jerome Powell said inflation in the US is indeed coming down. However, Fed officials are still seeking more confidence inflation will sustainably reach its 2% target. While there were no specific details on when the Fed might begin lowering interest rates, the comments incited expectations it might be getting closer. 

• Powell said he sees inflation coming down in the US. Last Friday, it was announced that the personal consumption expenditure price index, which serves as a key inflation gauge for the Fed, fell to 2.6% year-over-year in May from 2.7% in the previous month.
• While inflation is coming down, Powell noted the Fed could take its time in lowering interest rates. He acknowledged the US economy remains relatively strong, while the labour market remains tight, despite cooling off in recent months. Yesterday, it was announced that job openings in the US rose to 8.14 million in May from 7.92 million in April.
• Eurostat yesterday reported that Europe’s annual inflation rate was 2.5% in June, down from 2.6% in May. At the same conference, European Central Bank (ECB) President Christine Lagarde commented that the ECB wants more proof inflation is dropping before lowering interest rates again. The ECB lowered its key policy rate by 25 basis points to 4.25% at its last meeting.
• The Bank of Canada (BoC) will make its next interest-rate announcement on July 24. The BoC has already begun lowering interest rates but is currently expected to hold steady at this meeting.

The second half of 2024 has started with comments from key central bankers, which will likely set the stage for monetary policy decisions this year. While some might look at beginning, or continuing, to reduce interest rates, the pace of cuts will likely be gradual given the persistent risk of elevated inflationary pressures.

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