In recent testimony, Fed Chairman Powell stated that the longer-term policy of the Central Bank is now aiming for lower rates than today. Although several Fed members voiced worries about guarding against inflation, most now favor some sort of rate cut, as evidence by Powell’s recent comments. The Fed may now be poised to lower rates by a quarter of a point this year, from 2.50 percent to 2.25 percent. Although action at their next meeting is unlikely, the market is pricing this reduction into the forward curve. Somewhat counterintuitively, the Fed’s softer stance sparked a renewed rally across several sectors, most notably equities and energy markets.
Though fueled by concerns of a slowing economy, the anticipated rate cut is prompting renewed buying interest across many market segments, including commodities. With the nation’s gas inventories now up from year-ago levels, we will likely continue to build and pull even with the five-year average by fall. Tropical Storm Barry lent nearby support to natural gas pricing, and technical short covering has seen prices rebound by 10 to 15 percent from recent lows of $2.20. We are now trading near $2.45 per million BTU, but the rally may lack solid fundamental justification, allowing prices to remain range-bound.