As U.S. economic data softened and U.S. stocks rebounded due to the rapid cooling of interest rate hike expectations, the market seemed to be completely ignoring the hawkish signals from the Federal Reserve.
U.S. stocks accelerated on Friday after rebounding on Thursday, reversing a three-week losing streak this week. Market pricing shows that investors have begun to rule out the possibility of raising interest rates after December this year.
On the same day, another Fed official stated that he supported another substantial rate hike in July.
San Francisco Federal Reserve Bank President Mary Daly told the media after a public speech that she supports a 75 basis point rate hike in July, saying that is what needs to be done now.
It is worth mentioning that Daly has always been in the dovish camp of the Fed.
How much additional tightening is needed depends on factors outside the Fed’s direct control, including the speed and magnitude of supply chain recovery, the duration of the conflict in Ukraine, and the willingness of individuals who have left the labor force to return to the labor market, Daly said.
Daly predicts that the U.S. economy will be able to handle interest rate adjustments in stride and continue to expand:
I expect the price of the adjustment to be modest, with GDP growth below its long-term trend and unemployment rising from the very low levels we are seeing today.
This month, the Fed raised interest rates by 75 basis points to stem the fastest price rise in 40 years. Although Federal Reserve Chairman Jerome Powell emphasized that raising interest rates by 75 basis points is “abnormal”, many senior officials have recently made clear their support for another sharp increase in interest rates.
Since last week, Fed Governor Michelle Bowman, Chicago Fed President Charles Evans, Fed Governor Christopher Waller, and Minneapolis Fed President Neel Kashkari have all expressed support for another 75 basis points of interest rate hikes in July to curb high-fever inflation. .
However, the Fed can be a little relieved that U.S. inflation expectations have finally retreated from their highs.
Data released on Friday showed that the final reading of longer-term consumer inflation expectations at the University of Michigan in June fell from a 14-year high originally reported, with respondents now expecting inflation to rise by 3.1% over the next five to 10 years, a low rate. at the initial value of 3.3%.
The data temporarily eased inflation concerns, which could also reduce the urgency for the Fed to raise rates more aggressively.