Fed Chair Powell's Speech Amidst Fading Rate-Cut Euphoria

US Macro Data and Rate Cuts

Despite the US macro data continually surprising to the upside since the July FOMC meeting, The Fed proceeded to cut rates by a significant 50bps on September 18. This decision was made regardless of the strengthening economic data which has led to a hawkish decline in the market's expectations for rate-cuts in 2024 and 2025.

Fed Chair Powell's Address

Fed Chair Powell is set to speak at the National Association for Business Economics (NABE) in Nashville, Tennessee. This will be his first address since the significant rate cut, and he is expected to provide more insight into the Fed's decision. Powell is also expected to discuss the factors that will influence an anticipated series of reductions in borrowing costs for the rest of this year and in 2025.

Debate Over Rate Cut Decision

The debate over the Fed's decision to cut rates has already started. Fed Governor Michelle Bowman, who was in favor of a quarter-percentage-point reduction instead of the half-percentage-point cut on September 18, pointed out that the personal consumption expenditures price index, excluding food and energy costs, had slightly increased in August.

Downside Risks to the US Economy

According to a recent survey by the NABE of 32 professional forecasters, 39% identified a "monetary policy mistake" as the greatest downside risk to the U.S. economy over the next 12 months. In contrast, 23% saw the outcome of the upcoming U.S. presidential election as the biggest risk, while the same number pointed to an intensification of conflicts in Ukraine and the Middle East.

What to Expect from Powell's Speech?

It remains to be seen whether Powell will address the market's extreme dovishness or downplay the strength of recent macro data in his speech. His remarks are eagerly awaited and will be closely watched by market participants.

Full Prepared Remarks

Powell's full prepared remarks are to be released soon.

Bottom Line

The rate cut decision by The Fed, despite the strengthening US macro data, has sparked debates and raised questions about the potential risks to the U.S. economy. The upcoming speech by Fed Chair Powell is anticipated to shed some light on these issues. What are your thoughts on this matter? Feel free to share this article with your friends and discuss it. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.