Fed’s Powell testifies as inflation, hiring cool

Powell will likely be pressed harder by some lawmakers on why the Fed is hesitant to lower borrowing costs.

Jerome Powell is likely to tell lawmakers that Federal Reserve officials need further confirmation inflation is slowing before they’re in a position to cut interest rates, even with evidence building of softer growth and employment.

June consumer price index data are projected to be another step toward that goal, but the figures are only set for release on Thursday — after the Fed chair wraps up two days of Congressional testimony. Powell speaks Tuesday to the Senate Banking Committee, followed by a House panel appearance on Wednesday.

With fresh data showing the highest unemployment rate since late 2021, and other figures illustrating weaker economic growth, Powell will likely be pressed harder by some lawmakers on why the Fed is hesitant to lower borrowing costs.

On Tuesday, Powell said recent data suggest inflation is getting back on a downward path, but that he and his colleagues would like to see that progress continue.

The so-called core CPI, which excludes food and energy costs and is seen as a better measure of underlying inflation, is expected to rise 0.2% in June for a second month. That would mark the smallest back-to-back gains since August, a pace more palatable for Fed officials.

The inflation report is also forecast to show a modest 0.1% increase in the overall CPI from a month earlier. Compared with June of last year, the price metric is projected to rise 3.1%, the smallest annual advance in five months.

Meanwhile, Friday’s monthly payrolls report showed that the jobless rate, while still historically low at 4.1%, is creeping higher. Minutes from the Fed’s June policy meeting revealed that several officials flagged the risk that a further slowing in demand could lead to higher unemployment.

Economists on Friday will parse the government’s report on producer prices to assess the impact of certain categories — like portfolio management and health care — that feed into the Fed’s preferred inflation gauge, the personal consumption expenditures price index.

Meanwhile, China may get some mildly positive news on prices, with data Wednesday expected to show consumer inflation ticked higher in June and factory-gate deflation eased to the slowest pace since January 2023. Whether that helps buoy manufacturing remains to be seen. 

In other data, Japanese figures for workers’ pay on Monday may show real wages sliding for a 26th month in May, casting doubts on the prospects of achieving the virtuous cycle long sought by the Bank of Japan. 

Consumer price growth in India may have nudged higher in June, and Australia unveils consumer inflation expectations on Thursday. 

Trade statistics are due from China, the Philippines and Taiwan, while Singapore is set to release second-quarter gross domestic product data during the week. 

A focus for investors on Monday will be the aftermath of the French election. While financial-market concerns have eased, the prospect of a hung parliament leading to a minority government that lacks resolve to repair the public finances remains a likely outcome.

In the UK, whose own election led to a landslide victory for Keir Starmer’s Labour Party, investors will be on the lookout for any initial decisions impacting the economy and its own strained fiscal position. Data on Thursday, meanwhile, may show a pickup in growth in May after stagnation the previous month. 

European Central Bank policymakers have until the close of play on Wednesday to speak publicly about the upcoming July 18 rate decision before a blackout period kicks in. Amid a sparse calendar, Bundesbank President Joachim Nagel and Executive Board member Piero Cipollone are scheduled to make appearances.

It’s also a quiet week for data in the euro region. German exports on Monday and Italian industrial production numbers on Wednesday are among the highlights.