No Rate Hike, but No Rate Cuts Anytime Soon? - US Fed Update (18th May)

US Federal Reserve chairman Jerome Powell just updated the Fed’s stance on inflation and rate cut, here are the key notes for you:

- "I expect that inflation will move back down ... on a monthly basis to levels that were more like the lower readings that we were having last year,"

- "I would say my confidence in that is not as high as it was."

- "I don't think that it is likely based on the data we have that the next move that we make will be a rate hike"

- "We did not expect this to be a smooth road."

Following a report indicating a faster-than-expected rise in producer prices in April, Powell described the new data as "quite mixed," with some input prices for previous months being revised lower.

The Fed has maintained its benchmark policy rate steady at 5.25% to 5.5% since July, with market expectations shifting towards delaying any rate cuts until fall.

Powell also highlighted the economic strength supported by immigration, projecting about 2% growth this year, which is slightly above the Fed’s estimates of the economy's underlying potential. He noted the positive economic impact of immigrants who have helped alleviate tight labor markets from the previous year.

Here’s my takeaway: While he was quite cautious with his tone, he did hint at maintaining current interest rates - which is good news for us since it’s getting closer to the US general election (~November this year).

But what’d you think? Will there be a rate cut soon? Is the market way overpriced at the moment?