We are not expecting today’s keynote speech from Fed Chair Powell to change the current trading dynamic. 

If Fed Chair Powell comments on the outlook for monetary policy, we would expect him to signal that the Fed is approaching the end of its rate hike cycle with future policy decisions data-dependent. At the same time, we would expect him to reiterate that the Fed then plans to leave rates on hold for some time before beginning to lower rates next year when they have more confidence that inflation is continuing to fall back towards their 2.0% target.

Going into today’s speech from Fed Chair Powell, the US rate market is pricing in around 5 bps of hikes by the September FOMC meeting and 14 bps by November. We would not expect those expectations to change significantly today unless Chair Powell delivers a dovish surprise and formally ends the hiking cycle which appears unlikely. 

For next year the US rate market is already pricing in around 96 bps of rate cuts. We would not expect Fed Powell to strongly push back against those expectations at the current juncture.