Despite Ambiguous Press Conference... "Powell Implied July US Interest Rate Hike," Analysis

Financial market experts in the United States are increasingly interpreting Federal Reserve (Fed) Chair Jerome Powell's remarks as effectively signaling a rate hike in July. Despite Powell's responses drawing a line with statements such as "no decision has been made yet" and "it will be a live meeting," analysts suggest that unconscious hints revealing his preference emerged during the press conference.

[Image source=Reuters Yonhap News]

The Wall Street Journal (WSJ) reported on the 15th (local time) that Powell's comments at the press conference are fundamentally being interpreted as indicating a rate increase at the upcoming Federal Open Market Committee (FOMC) regular meeting next month.

At this month's FOMC meeting held until the previous day, the Fed kept the interest rate steady at 5 to 5.25%, while simultaneously raising the year-end rate forecast on the dot plot from the previous 5.1% (median) to 5.6%. This signals the possibility of two additional hikes in the remaining four meetings this year.

Accordingly, market attention focused on whether rates would rise starting in July, but Powell drew a line at the press conference the day before, stating, "Today's decision is limited to this meeting only." He gave a principled answer, saying, "No decision has been made regarding the July FOMC. It will be a live meeting."

However, market experts paid close attention to Powell's inadvertent use of the word "skip" during the Q&A with reporters. At that moment, Powell said, "this skip decision," but immediately corrected himself, saying, "I don't think it should be called a skip."

Market experts analyze that Powell, who rarely reveals his true intentions with ambiguous answers, unconsciously showed a preference for a rate hike next month through this remark. Gregory Daco, Chief Economist at EY, described the mention of "skip" as a "slip of the tongue" by Powell, interpreting it as meaning "a rate hike in July is almost certain." He explained, "In a situation where opinions among policymakers are divided, the mention of 'skip' explains how Powell led a unanimous decision to hold rates steady."

Within the Fed, ahead of the June FOMC, opinions were divided between hawks (favoring monetary tightening) who argued for continued hikes due to persistent inflation and an overheated labor market, and doves (favoring monetary easing) who believed it was time to pause and assess the cumulative effects of policy. It is explained that Powell likely gathered both sides' opinions and steered toward a "hawkish pause" scenario, skipping this month's policy decision and raising rates later.

Recent indicators also support the analysis that a rate hike next month is likely. Tim Duy, Chief Economist at SGH Macro Advisors, said, "Although there are several forecasts that inflation will slow in June due to falling used car prices, a one-month improvement is not enough to justify a prolonged pause in rate hikes." He added, "The July decision is almost made," reinforcing the expectation of a hike. Powell reaffirmed the data-dependent policy approach at the press conference the day before and expressed strong concerns about inflation.

Economic indicators released the day after the FOMC also partially support this analysis. Despite inflation and aggressive tightening, U.S. retail sales showed stronger-than-expected performance. According to the Department of Commerce, May retail sales increased by 0.3% month-over-month. This was a surprise increase overturning expert forecasts compiled by WSJ and Bloomberg News, which predicted a 0.2% decline. Core retail sales, excluding gasoline and automobiles, also rose 0.2% compared to the previous month.

Retail sales are considered a pillar accounting for two-thirds of the U.S. real economy and a comprehensive indicator of economic health. Accordingly, local media assessed that current figures suggest the economy is far from a recession. Bloomberg News evaluated, "Retail sales unexpectedly increased, showing resilient consumer demand."

The New York Empire State Manufacturing Index for June, released the same day, recorded 6.6, significantly exceeding expectations and turning positive, indicating expansion. The initial market forecast was -16. The Philadelphia Federal Reserve Bank's manufacturing activity index for June also slightly exceeded market expectations (-14.8) with a reading of -13.7. These indices distinguish expansion and contraction based on zero.

Currently, the market slightly favors the resumption of rate hikes in July. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) rate futures market currently reflects a 67% probability that the Fed will raise rates by 0.25 percentage points in July.

Marty Green, head of Polonsky Beitel Green, told CNBC, "This policy decision indicates that the Fed has shifted from the rate hike phase to an adjustment phase in the rate cycle, but there is no doubt that it is fully prepared to proceed with additional hikes." The next FOMC meeting will be held on July 25-26.

This content was produced with the assistance of AI translation services.