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Investing.com -- Citi economists led by Andrew Hollenhorst anticipate Federal Reserve Chair Jerome Powell will adopt a dovish stance at today’s press conference, with the research firm expecting the Fed’s median projection to maintain two 25-basis-point rate cuts for this year. The bank cites three key factors supporting a dovish outlook from Powell.
First, core PCE inflation is projected to register just 1.6% annualized over March, April, and May, following stronger January and February readings that were influenced by residual seasonality. The ongoing slowdown in shelter inflation appears likely to continue given weak housing activity.
"Powell and the committee should be increasingly confident that aside from potential temporary tariff effects in goods prices, core inflation is returning to target," Hollenhorst wrote in today’s note.
Rising continuing jobless claims represent the second factor, with the four-week average now at its highest level since 2021 at 1,956,000. While initial claims remain low, Citi notes the data suggests that although layoffs haven’t increased, weak hiring makes it difficult for unemployed individuals to find new positions.
While Powell is widely expected to say the labor market is resilient, the economist adds that "the recently softer labor market data will at least add a touch of caution to Powell’s comments about keeping rates on hold."
Housing market weakness provides the third reason for a potential dovish tone. Single-family home prices, permits, and starts are all declining, with the NAHB index falling to 32 in June data, its lowest level since 2022. Conditions in the South are particularly weak, with that region’s NAHB at 30, its lowest since 2012.
"In our base case median “dots” will continue to signal two 25bp rate cuts this year. But even in the event the median for this year moves to just one rate cut, we expect Chair Powell to focus on the desire to cut rates later this year (informed by the three considerations above), delivering a dovish message at the press conference," Hollenhorst concluded.