The more hesitant tone in world markets follows a fresh surge in optimism that a U.S. rate cutting cycle is likely to begin in September.
In highly anticipated comments before the Jackson Hole Economic Symposium, Fed boss Powell said “the time has come” to lower the Fed funds target rate, and “the upside risks of inflation have diminished.”
For sure, the data-dependent Fed will have a raft of economic indicators to consider ahead of its September meeting, including this week’s revised second-quarter GDP and the broad-ranging Personal Consumption Expenditures (PCE) report, which includes the Fed’s preferred inflation yardstick, the PCE price index.
But these would have to deliver major surprises to shake the market’s view that a rate decrease — of at least 25 basis points — is coming.
Also speaking at Jackson Hole, European Central Bank chief economist Philip Lane struck a more cautious note at the weekend, saying the central bank was making “good progress” in cutting euro zone inflation back to its 2% target but success is not yet assured.
All this has left the dollar languishing at three-week lows versus the yen. The euro and British pound were a tad lower on the day but holding near multi-month peaks hit against the greenback on Friday.
