Powell testimony - Day 2

Federal Reserve Chair Jerome Powell hints at potential interest rate cuts amid cooling job market, while RBNZ holds rates and softens stance, and China's CPI slows

By Ahmed Azzam | @3zzamous | 10 July 2024

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  • Jerome Powell continues his semi-annual monetary policy report before the House committee

  • RBNZ maintains the OCR at 5.50% and softens its hawkish stance

  • China's CPI slows to 0.2% year-on-year in June, missing expectations

Federal Reserve Chair Jerome Powell is set to appear before a House committee on Wednesday, marking the second day of his semi-annual monetary policy report.

During his testimony on Tuesday, Powell refrained from giving direct signals about the timing of interest rate changes. However, he noted that the economy is no longer overheated and the job market has cooled, suggesting that the likelihood of interest rate cuts is increasing.

Investors will closely monitor his responses on Wednesday for any additional insights into future policy directions and to build on the information provided during the first day of testimony.

RBNZ holds rates at 5.50%, softens hawkish tone

The Reserve Bank of New Zealand (RBNZ) maintained the Official Cash Rate (OCR) at 5.50%, as anticipated. The central bank's accompanying statement reflected a softer hawkish stance, indicating that the extent of monetary restriction "will be tempered over time consistent with the expected decline in inflation pressures." Markets perceived this as a signal that RBNZ is moving closer to reducing interest rates.

RBNZ acknowledged that its stringent monetary policy has significantly curbed consumer price inflation, with headline inflation expected to return to the 1-3% target band in the latter half of the year. This decline is attributed to diminishing domestic pricing pressures and lower inflation for imported goods and services. Additionally, labor market pressures have eased.

While domestic price pressures "remain strong," RBNZ noted signs that "inflation persistence will ease in line with the fall in capacity pressures and business pricing intentions."

China’s CPI slows to 0.2% in June, PPI negative for 21st month

China's Consumer Price Index (CPI) slowed to 0.2% year-on-year in June, down from 0.3% in May, missing the forecasted 0.4% increase. Core CPI, which excludes volatile food and energy prices, remained at 0.6% year-on-year, unchanged from May but slightly below the 0.7% growth seen in the first half of the year.

Month-on-month, inflation stayed negative in June, with CPI dropping by 0.2%, following a 0.1% decrease in May. This ongoing negative trend underscores persistent deflationary pressures in the economy.

The Producer Price Index (PPI) declined by 0.8% year-on-year, an improvement from the previous month's 1.4% decrease and in line with market expectations. Despite the slight improvement, PPI has remained negative for the 21st consecutive month, indicating continued weakness in industrial prices.