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Analysts at Nomura explained that the Federal Reserve released its semiannual Monetary Policy Report ahead of Chair Powell testimony to Congress on 17 July.  

Key Quotes:

“Overall, the report did not appear to offer any substantive new developments for the trajectory of near-term policy. Of the highlights, the report focused on the prime age labor force participation rate (LFPR), financial stability, interest rates used in setting policy and monetary policy rules.”

“In particular, the report indicated that the FOMC is likely comfortable with the current pace of the balance sheet roll-off, while there are ongoing discussions on the eventual long-term size of the balance sheet.”

“The report also pointed to significant uncertainty around estimates of the longer-run neutral rate as one of complications for prescriptions of a policy rule. Some of these highlights, particularly those relating to the Federal Reserve’s balance sheet and monetary policy rules, will likely be referenced in Powell’s testimony next week.”

“During an interview this week, Powell reaffirmed his positive economic outlook noting that “the United States economy is in a good place from a cyclical standpoint close to our maximum employment and stable prices target.” However, relative to the June postmeeting press conference, Powell was more explicit with respect to the Committee’s concerns over US trade policy. We expect his congressional testimony next week to largely follow the tone of his interview and the Monetary Policy Report.”

“Powell’s testimony will start at 10:00am EDT on Tuesday, 17 July with his prepared remarks released at 8:30am EDT. “