The Federal Reserve chairman surprised the markets in his latest press conference on 1 May when he withdrew a significant part of the dovish rhetoric that has supported risk assets since early January.
Jay Powell’s main messages that day were that downside risks to the economy stemming from foreign economic events, notably in China, had diminished, and that recent low prints for core inflation were only temporary. Under repeated questioning, he refused to give any indication that a reduction in interest rates was even remotely under discussion.
Despite this, market sentiment remains extremely open to the possibility that the Fed’s next move will be to cut rates. In the latest Wall Street Journal survey of US economic forecasters, there is a small majority that believe the next move will be downwards and will occur before the end of this year.