The market will face its moment of reality this week.
After hitting record highs earlier within the week, stocks retreated from those levels, after a blowout jobs report on Friday dampened the probabilities of a July rate cut.
The U.S. financial system added a stunningly stable 224,000 jobs in June, effectively above consensus estimates for 160,000 positions. June’s report was carefully watched by traders, as many believed that a second consecutive weak jobs report would drive the Federal Reserve to slash rates of interest at its meeting later this month. However, the labor market remained the bright spot within the economy, as other latest financial data present signs of deceleration amid the longest economic expansion on record.
This week, Federal Reserve Chairman Jerome Powell might be delivering his semi-annual Monetary Policy Report to Congress on Wednesday and Thursday, and the Federal Open Market Committee (FOMC) may also launch its June meeting minutes on Wednesday.
Powell’s testimony will carry additional weight and might be even more closely watched, as market watchers search for clues on the central bank’s monetary policy path going ahead. In addition, the Fed’s meeting minutes will provide insight into the views of FOMC members.
Capital Economics echoed Bank of America’s prediction. “The data this week had been consistent with a continued slowdown in economic growth, however, don’t but look weak enough to convince the Fed to cut rates of interest instantly,” the analysis firm wrote on Friday. “We suspect that Chair Jerome Powell will use his semi-annual testimony to Congress next week to push again against expectations of a rate cut later this month.”