While the data last week remained consistent with a slowdown in economic growth, the positives may be enough to allow the Fed to wait until September before cutting rates. Chairman Powell is scheduled to deliver his semi-annual testimony to Congress this week and may use it as an opportunity to temper market expectations.
Most notably, the 224k gain in payrolls was stronger than had been expected and now has a three month average of 171k which is much higher than when the Fed typically begins an easing cycle. That being said, both the ISM manufacturing and non-manufacturing were weaker which continued to make headlines… While trade woes continue to hurt manufacturing, a solid June auto sales report provided evidence that consumption has rebounded in the second quarter.
As of now, there is still a 25 basis point (0.25%) cut priced into the market for July.
On another Fed note, President Trump indicated that he would nominate Christopher Waller and Judy Shelton to the vacant seats of the Fed Board. While both have recently been considered to be dovish, Shelton has historically been a critic of the Fed’s loose monetary policy. Shelton is currently on the Board of the European Bank for Reconstruction & Development while Waller is the Director of Research at the St. Louis Fed. If nominated, Waller should face little resistance while Shelton may face a bit of scrutiny over her belief that the U.S. return to the gold standard… Neither are thought of as poor choices which bodes well for the Presidents desire to fill the Fed with doves.
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