Officials still cautious on Fed’s policy after April inflation report

Fed policymakers’ comments will be watched closely by investors this week. Markets see a waning probability of a Fed policy hold in September. Fed rate outlook could influence the risk mood and the US Dollar’s valuation.

Fed policymakers are scheduled to deliver speeches this week as investors reassess the interest rate outlook following the April Consumer Price Index (CPI) data. According to the CME FedWatch Tool, the probability of a no change in the Fed’s policy rate in September holds around 35%.

Fed Governor Christopher Waller refrained from commenting on the policy or the economic outlook in a prepared speech on Monday, Fed Vice Chair for Supervision Michael Barr said that the Fed is in a good position to hold the policy steady and watch the economy, per Reuters. Meanwhile, Fed Vice Chair of the Board of Governors Phillip Jefferson acknowledged that April’s better inflation reading was encouraging and added that it was too early to tell if the recent slowdown in disinflationary process will be long-lasting.

Fed’s Jefferson stated that it is too early to tell if recent slowdown in disinflationary process will be long-lasting. Fed’s Barr reiterated that Fed in good position to hold steady and watch economy.

Earlier in the day, Bostic said that it is going to take a while before they are certain that inflation is going back down to 2%. Bostic also mentioned that Fed is open to all possibilities on path of economy.

The Fed has adopted a cautious rhetoric regarding the timing of the policy pivot following the stronger-than-expected inflation readings in the first quarter of the year. The US Bureau of Labor Statistics reported on Wednesday that the core Consumer Price Index (CPI) rose 3.6% on a yearly basis in April. This reading followed the 3.8% increase recorded in March and came in line with the market expectation.

On a monthly basis, the CPI and the core CPI both rose 0.3% after rising 0.4% in March. The US Dollar (USD) came under bearish pressure as market participants assessed the inflation data and the USD Index fell to its lowest level in over a month, losing over 0.7% on a weekly basis.