The Fed is determined to crack down on inflation, acknowledging that they could not identify the early signs of rising prices.
The Fed will therefore have to continue raising rates, as the market has already anticipated. Still, it is possible that the slowdown in the economy, which there are beginning to be signs, will prevent the Federal Reserve from taking interest rates as high as the market had touted.
Preliminary PMI data for June, both manufacturing and services, published yesterday showed a notable setback, approaching the expansion threshold in the 50 zone.
The market is already focusing on a potential economic slowdown, although still far from a recession. This could force the Fed to hold back on the path to a more restrictive monetary policy.
This stance was reflected in market interest rates. Treasury bond yields turned lower again, with the 10-year approaching the 3% zone, after recently hitting the 3.50% level. A movement of treasury bonds of considerable magnitude, if maintained or even accentuated, could completely change the market scenario.
Still, Powell insisted in his statement that the US economy remains in good shape and expects Q2 GDP to be positive. In these circumstances, the data on non-farm payrolls and the unemployment rate published next week is very important. The metrics will gauge whether the slowdown is already beginning in the labor market.
But paradoxically, this environment of economic slowdown, although a recession is still not in sight, remains positive for the stock markets: the Federal Reserve will not need to raise interest rates aggressively, as expected until now. Moreover, investors' main concern so far has been that the Fed could cause a hard landing if they go too far with rate hikes.
The Wall Street indices ended the session with gains, with the Nasdaq up 1.34%.
Today, the leading indicators of the University of Michigan are published, data followed by Fed officials, which will serve to assess the state of the US economy and will probably have an impact on the market.
The phenomenon of economic slowdown is global, not just in the United States. One of the most reliable indicators of the economy's evolution is copper, the main industrial metal. And as we can see from the chart, it has been on a downward path in the last two weeks, leading it to break an important support level at $4.00. From a technical point of view, it leads to greater losses toward the $3.55 level.
Sources: Bloomberg, Reuters