Federal Reserve’s Powell Signals Extended Restrictive Monetary Policy
Fed Chair’s Commentary: Federal Reserve Chairman Jerome Powell, speaking at a forum in Washington on Tuesday, indicated that the U.S. central bank might maintain its restrictive monetary policy longer than previously anticipated. This marks a shift from Powell’s remarks five weeks earlier to a U.S. Senate panel, where he suggested the Fed was close to being confident enough in declining inflation to consider rate cuts. His latest comments reflect concerns due to stronger labor market data and persistent inflation pressures, suggesting that rate cuts, once expected as soon as June, might now be postponed until at least September.
Economic Data Impact: Recent economic indicators showing robust growth and persistent inflation have led investors to adjust their expectations regarding the timing and likelihood of rate cuts. The reassessment follows a period where the Fed was widely anticipated to initiate rate reductions mid-year, with additional cuts by the end of 2024. However, the probability of these adjustments is now diminishing.
ASML’s Mixed Financial Results: In corporate news, semiconductor giant ASML provided a mixed earnings report on Wednesday. The Europe-based tech leader exceeded profit expectations for the first quarter but fell short on sales forecasts, despite strong demand from China. ASML, a critical player in the semiconductor industry, noted that sales in China constituted a record 49% of its total sales for the quarter, amid ongoing U.S. export restrictions.
UK Economic Indicators: In the United Kingdom, March’s consumer price inflation decelerated to 3.2%, marking the lowest rate in over two years and down from 3.4% in February. The Office for National Statistics attributed the slowdown primarily to lesser increases in food prices, somewhat offset by rising fuel costs. Core inflation, excluding volatile items like energy and food, also decreased to 4.2% from 4.5%. This slowdown in inflation aligns with other indicators, such as wage growth deceleration, giving the Bank of England more room to potentially lower interest rates in the coming months, with cuts expected possibly by August or September.
Global Oil Market Fluctuations: On the commodities front, crude prices fell on Wednesday due to concerns about global demand, overshadowing fears of supply disruptions from the Middle East. Despite a better-than-expected growth report from China for the first quarter, other data suggested a slowdown in March. Furthermore, a significant increase in U.S. crude inventories, reported by the American Petroleum Institute, has contributed to concerns about an oversupplied market. Prices had surged the previous week amid heightened geopolitical tensions between Iran and Israel, but the recent inventory build and ongoing high U.S. production rates are putting downward pressure on prices.
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