The Federal Reserve is eagerly awaiting the release of key economic data this week to gain a better understanding of the current state of growth and inflation in the US. The upcoming Preliminary GDP report on Thursday and the PCE inflation data on Friday will provide crucial insights that could impact the Fed’s decision-making process ahead of the July FOMC meeting.
Recent inflation reports have shown signs of improvement, which have eased concerns among policymakers and investors. The Fed has hinted at a possible rate cut in the near future, but Chair Jerome Powell has emphasized the importance of seeing more positive data to support this decision. Therefore, the upcoming PCE inflation figures will be closely watched to determine the Fed’s next steps.
The PCE price index is expected to have eased in June, which could be a positive sign for achieving the Fed’s 2% price objective. Additionally, personal income and consumption numbers will shed light on whether American households are spending less, potentially impacting inflation levels.
While the US economy has shown signs of slowing down this year, GDP growth in the second quarter is projected to have quickened. However, policymakers are still grappling with uncertainties surrounding inflation and growth, which could influence their decision-making process in the upcoming FOMC meeting.
The Fed is not in a rush to cut rates, as policymakers seem comfortable waiting for more data before making any significant policy shifts. A lower GDP print could alleviate concerns about domestic demand, but the focus remains on whether softer readings on inflation or growth could prompt a policy shift by the Fed.
The US dollar could face pressure if the upcoming data suggests a rate cut in September. However, any unexpected positive data could lead to a rebound in the dollar, affecting its performance against other currencies such as the Japanese yen.
In addition to economic data, investors will also be closely monitoring the US presidential race, as the Democrats’ chances of securing victory have increased following President Biden’s decision not to seek re-election. The outcome of the elections could have implications for the dollar’s performance, depending on the trade policies of the winning candidate.
Overall, the upcoming economic data releases and political developments will play a crucial role in shaping market sentiment and influencing the Fed’s decision-making process in the upcoming FOMC meeting. Investors should stay vigilant and monitor these key events to make informed trading decisions.