Far from the stressful episodes of recent weeks, investors are smiling again. Between the decline in geopolitical tensions, a lull on the trade front (no surprise new tax from Donald Trump for once!), and Jerome Powell's accommodative speech, the climate has calmed considerably. As a result, the markets are once again attacking their peaks. The S&P 500 and the Nasdaq are hovering near their all-time highs as if nothing had happened, and concerns about US assets seem like a distant memory. Besides, who's still talking about a recession in the United States?
In this almost idyllic setting, and in a relatively calm week, the markets were awaiting clarification on the Fed's monetary policy, as Jerome Powell spoke before the House Committee on Financial Affairs. And as is often the case in such cases, everyone heard what they wanted to hear. Investors thus focused on a subtle hint from Jerome Powell: if the Fed found itself in a situation where it was a little too slow to act, it could quickly reverse the situation, as happened last September when it suddenly cut its key interest rates by 50 basis points.
A "dovish" nod, certainly... even if this decision isn't the best example, as it still appears inconsistent with the Fed's rate-cutting timetable. This (very) subtle hint seemed to escape Donald Trump, who once again fired all the stops at Jerome Powell, deeming him "averagely mentally gifted" and "very stupid." It must be said that the rest of the hearing remained in line with the Fed Chairman's previous statements. The key word: wait-and-see. He thus closed the door opened by two FOMC members, Christopher Waller and Michelle Bowman, who advocated for a rate cut at the July meeting. Reiterating that the Fed "needs no rush," Jerome Powell maintains that it is above all necessary to assess the inflationary impact of tariffs before acting. For now, American companies have mainly used their inventories to cushion the shock, but the effect on prices should begin to appear in the figures starting in the third quarter. A joint study by Duke University and the Richmond and Atlanta Feds lends credence to this caution: when asked how they planned to manage the additional cost associated with tariffs, more than 60% of the CFOs surveyed said they would pass it on to prices (see chart of the week).
So, see you in September. In the meantime, be patient. This slogan has also been echoed by several Fed officials (John Williams, Raphael Bostic, Michael Barr) who are also fans of the "wait-and-see" approach. The economy is holding up and the labor market is still flirting with full employment: why rush?
