Australia’s sharemarket is gearing up for a potential rebound following Friday’s downturn, with ASX futures pointing to a 0.3 per cent increase at the opening on Monday. This positive outlook comes as traders anticipate Federal Reserve chairman Jerome Powell’s forthcoming remarks on the US monetary policy, with expectations of a more hawkish stance.

The market sentiment in Australia has been influenced by a shift in the interest rate forecast, driven by stronger-than-anticipated local inflation figures. This has led traders to reconsider expected rate cuts and factor in the possibility of further rate hikes by the Reserve Bank.

Meanwhile, the US experienced a lower-than-expected growth rate in gross domestic product, with a 1.6 per cent increase in the first quarter of the year compared to 3.4 per cent in the previous quarter. This data, coupled with disappointing inflation figures, has set the stage for a potentially more hawkish tone from Powell at the upcoming Federal Reserve meeting.

Market analysts are predicting Powell to adopt a cautious approach, emphasizing concerns about the prolonged inflationary pressures and the time needed to address them effectively. The expectation is for Powell to maintain a ‘higher-for-longer’ narrative, signaling a shift away from market expectations of easing measures.

As Commonwealth Bank senior economist Belinda Allen highlights, Powell’s upcoming press conference holds significant importance for global financial markets, with a focus on his stance regarding inflation control. The challenge for Powell lies in balancing the need to manage rate cut expectations while avoiding a drastic market response that could further tighten financial conditions.

Overall, market forecasts suggest a cautious approach from the Federal Reserve, with expectations of modest rate cuts in September. Powell’s ability to navigate the current economic landscape and communicate the Fed’s strategy effectively will be closely watched by investors and analysts alike.