The Time Has Come

Jerome Powell signals a less restrictive policy

Summary: Jerome Powell signaled that the time has come for policy to become less restrictive. It appears that the Fed will begin the process of lowering rates in September. The economy is stable but sluggish.

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Macro

The time has come for lower rates

"The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. We will do everything we can to support a strong labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market." - Federal Reserve Chair Jerome Powell

Fed members seem to be in agreement

"Participants viewed the incoming data as enhancing their confidence that inflation was moving toward the Committee's objective. The vast majority observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting." - FOMC Minutes

“We've seen quite a lot of reduction in inflation The reduction to me is consistent with more confidence that we are on that trajectory and with labor markets healthy overall, I do think that soon it is appropriate to begin easing...I think a gradual, methodical pace once we are in a different policy stance is likely to be appropriate." - Boston Fed President Susan Collins

“It was all inflation, inflation, inflation for a while Now we're starting to see things, the balance of risk, getting more equalized. So we do need to take more into account when it comes to the labor market, for sure....It means this September we need to start a process of moving rates down." - Philadelphia Fed Chief Patrick Harker

Rates may have to come down by a lot to fully boost the economy

"The reality is when we look at the lock-in effect, the majority of homeowners are still at 4%. Mortgage rates are less. So, even if we do see some level of decrease that we do believe there still may be a reluctance to engage." - Lowe's Companies (LOW 0.00%↑) CFO Brandon Sink

Target saw resilient consumers

"As we continue to survey consumers and monitor the external environment, our view remains largely the same, as we've been sharing for some time. Consumers have shown remarkable resilience in the face of multiple challenges over the last several years, and they remain resilient today...American families continue to deal with a lot. These pressures are clearly weighing on them, and they're looking for a refuge from the everyday stress that they're feeling. And yet while the economic data remains mixed, we see a consumer that is still willing and able to spend. Yes, they're still being choiceful. Yes, they're budget-conscious. And yes, they're hunting for deals and everyday value. But they're also willing to shop when they find that right combination of fashion and newness at the right price." - Target (TGT 0.00%↑) CCO Rick Gomez

But growth is not strong
"Q2 comparable sales grew 2%, at the very top end of our guidance range." - Target (TGT 0.00%↑) CEO Brian Cornell

Wage inflation may not be completely gone

"In terms of other areas of cost within the supply chain, we have wages within our distribution centers. There's a little bit of pressure there as well as within our Mexico operations." - Flexsteel Industries (FLXS 0.00%↑) CFO ​​Mike Ressler

International