A sign that the impatience concerning the next rate drops is well present in the American administration, we will remember the little sentence of the secretary of the treasury at the end of last week. While Scott Bessent had calmed the ardors of the American president against Jerome Powell a few months ago, he said on Friday that he noted that “rates at two years are now lower than the rates of federal funds” and that it was “a market signal which indicates that they think that the Fed should reduce its rates. »»
It is not a direct request to Jerome Powell, Scott Bessent publicly respecting the independence of the Fed, but it is a way to get the message across …
What are the elements available to Jerome Powell and Fed members before this meeting?
Regarding the first mandate, that of employment: the last report published on Friday does not reveal any particular weakness with a stable unemployment rate at 4.2%, 177,000 non -agricultural jobs and an annual increase in wages of 3.8%. If however Jerome Powell wanted to seek a few less favorable elements, he could rely on the increase in weekly unemployed registrations (9 weeks higher for the last publication), the withdrawal of the available number of jobs (JOLTS figure published last week) or the ADP figure, released at 62,000 against a consensus at 115,000.
Regarding the second mandate, that of inflation: progress has been made on the underlying PCE inflation front (“Core”) in March, this is the most monitored measure by the Fed. Inflation increased from 2.8% in February to 2.6% in March (y/y). But if we widen the period, it is necessary to note that PCE inflation evolves between 2.6% and 2.8% since… 14 months! Not sure that the March figures have marked enough progress for the Fed. And with the obvious fear of seeing inflation bounce with customs taxes.
-However, the Fed will have noted the sharp drop in oil prices for several weeks, as well as the drop in maritime transport prices.
The main problem of the Fed remains, at this stage, and as for several months, the unpredictability of American trade policy, in terms of level of new taxes and calendar, making very difficult any new projection.
It remains to be seen if Jerome Powell will have been sensitive to the surprise contraction of American GDP in the first quarter (due to the strong imbalance of the trade balance) and if it considers that there is an economic risk, and therefore a risk for employment, in the coming months … which would allow him to reopen the door to the rate drops.
At this stage, the markets are not anticipating a rate drop in June and barely more than 50% of opportunities for a rate drop in July.
