New Fed Communications Agency’s Latest Interpretation: Powell Hints at Possible Rate Hike in July

On Thursday, June 15, local time, journalist Nick Timiraos, known as the “New Fed Communications Agency,” wrote an article indicating that after Powell's press conference, many analysts have started to accept the potential action of “rate hike next month.”

It is worth mentioning that Timiraos attended the press conference yesterday and had an exchange with Fed Chair Powell during the Q&A session. Based on his observations, some analysts believe that Powell's remarks that day implied his stance to further hike rates at the July 25-26 monetary policy meeting.

On Wednesday, the Federal Reserve announced its decision to keep the federal funds rate target range unchanged between 5% and 5.25%, marking the first pause since the beginning of the aggressive rate hike cycle in March 2022. Over the past 15 months, the Fed has raised rates ten times, with a cumulative increase of 500 basis points.

However, the release of the “dot plot” at the same time created quite a stir in the market. Central bank officials projected a median interest rate of 5.6% by the end of the year, which is nearly 50 basis points higher than the current level of 5.00%-5.25%. This suggests that the Fed may hike rates twice more this year.

Timiraos mentioned that during Powell's first year as Fed Chair, the central bank had intermittently raised rates for a period of time. This aligns with a statement from the Chair yesterday, stating that the market should not view the pause in June as a “skip,” but rather as a “slower pace of rate hikes to allow the economy to adjust.”

Several analysts believe that this inadvertently revealed Powell's inclination towards a rate hike next month. Powell also referred to the July meeting as a “live” meeting, which, according to Timiraos, is a common phrase used by central bank officials, indicating a greater possibility of a rate hike.

Gregory Daco, Chief Economist at consulting firm EY, stated that Powell's remarks almost guarantee a rate hike in July. This also explains how he managed to convince dissenting officials within the central bank to ultimately vote in favor of maintaining the current rates.

Some voices suggest that the economic data leading up to the July meeting is unlikely to show weakness significant enough to reverse the course of rate hikes.

Tim Duy, Chief Economist at SGH Macro Advisors, mentioned that even if June's inflation is expected to slow down further due to used car prices, officials will argue that one month of improvement is not enough reason to pause the rate hikes.