Still waiting for the Fed as the presidential election heats up…

On Tuesday, Fed Chair Jerome Powell released statements that sounded more dovish than other recent comments. Powell stated that the Federal Reserve has seen “a lot of progress” in relation to inflation, but that policymakers need more data before cutting interest rates to verify that recent weaker inflation readings are providing an accurate picture of the economy. After Chair Powell refused to set a prospective date for the first rate cut, analysts are now banking upon an initial rate cut to occur by early November.

Likely influencing the central banker’s comments was Friday’s personal consumption expenditures (PCE) price index release. The Fed’s preferred inflation reading showed a 2.6% year-over-year increase with no change from April for the month-over-month reading. Core PCE showed a 0.1% monthly increase, and 2.7% year-over-year increase. While still above the U.S. central bank’s 2.0% target, the PCE reading is on its way down after a scare in the first months of the year.

Additionally, Tuesday’s Job Opening and Labor Turnover Survey (JOLTS) Report showed 8.14 million openings vs the 7.946 million estimated. While the May JOLTS quit rate remained unchanged at 2.2%, it is near pre-pandemic levels and suggests that wage inflation continues to moderate. The reading provides insight into the United States labor market and could be a data point encouraging the Federal Reserve to entertain cutting rates sooner.

Following a weak performance by President Biden in the year’s first electoral debate with former President Trump, many investors now believe the odds of a new Trump presidency have increased. Markets are still trying to absorb this potential outcome and ascertain what this presidency could mean for the capital markets.