What will Fed Chair Powell say this week?

Federal Reserve Chair Jerome Powell is set to deliver his semi-annual Congressional testimony this week, and while no groundbreaking news is expected, his remarks will be closely scrutinized for clues about the Fed's stance on inflation and future rate changes.

Piper Sandler analysts suggest that Powell will emphasize the "significant" progress made on reducing inflation but will also stress that more work is needed to achieve a sustainable 2% inflation rate.

Powell is expected to highlight the challenges in maintaining "confidence" in the inflation outlook, indicating vigilance against potential setbacks.

According to Piper Sandler, the testimony is likely to address the "better," yet incomplete, "balance" of risks around the Fed's mandate. In addition, they state that Powell might touch on the possibility that unexpected employment weakness could lead to an earlier easing of monetary policy, especially if disinflation trends continue positively.

However, the latest Fed minutes revealed that several participants believe rates might still need to be raised if progress on inflation stalls or prices rise unexpectedly. This hesitancy suggests that an imminent rate cut is unlikely.

Piper Sandler concludes that Powell will not suggest a rate cut in July, which is considered off the table. As for September, the decision will depend on forthcoming economic data, and Powell will likely remain noncommittal.

They note that investor expectations for Fed easing have shifted since the June FOMC meeting, with options indicating a range of possible outcomes, including both easing and potential rate hikes.