Powell Pontificates but Pulls his Punches as Predicted

In yesterday’s article, we highlighted the crosswinds impacting today’s speech by Fed Chairman Powell at the Jackson Hole Symposium, eventually concluding that, “Powell [should] maintain the same optimistic perspective he espoused at his Congressional testimony last month” (see “Is EUR/USD Rolling Over Ahead of Powell?” for more). As it turns out, this prediction was accurate, though the initial market reaction did little to reassure dollar bulls.

First, the headlines from Powell’s speech were as follows (emphasis mine):

POWELL SEES GOOD REASON TO EXPECT STRONG ECONOMY TO CONTINUE
POWELL: GRADUAL HIKES LIKELY APPROPRIATE IF GROWTH STAYS STRONG
POWELL: THERE DOESN'T SEEM TO BE ELEVATED RISK OF OVERHEATING
POWELL: WILL DO WHAT IT TAKES IF INFLATION EXPECTATIONS DRIFT
POWELL SAYS NO CLEAR SIGN OF INFLATION ACCELERATING ABOVE 2%

The headlines about strong economic growth and further “gradual” hikes were widely expected, and therefore fully discounted by the market. That said, the repeated emphasis on subdued inflationary pressures suggests that Powell sees no urgency to raise interest rates above the “neutral” rate, which the majority of Federal Reserve members believe is in the 2.75-3.00% range according to the central bank’s most recent Summary of Economic Projections.

Source: Federal Reserve, FOREX.com

In terms of market expectations, there’s been essentially no change to the market-implied odds of a rate hike in September (95%+) or December (~65%), as befits a mostly as-expected speech. With the Fed’s path seeming set for the next three months, shorter-term traders may now turn their attention to political and economic developments instead of central banker comments.

Market Reaction: Mixed

We’ve some interesting, if inconsistent, moves in the wake of the Powell’s comments. As of writing, US stock indices are trading higher on the day by about 0.5%, with the S&P 500 hitting a fresh record high. After an initial swoon, the US dollar index is stabilizing just above 95.00, where it opened the week. Both gold and oil are rising by about 2% on the day, and the yield on the benchmark 10-year Treasury bond has dropped 2bps back to 2.82%.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

FOREX.com is a registered FCM and RFED with the CFTC and member of the National Futures Association (NFA # 0339826). Forex trading involves significant risk of loss and is not suitable for all investors. Full Disclosures and Risk Warning. Increased leverage increases risk.

GAIN Capital Group LLC (dba FOREX.com) 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA. GAIN Capital Group LLC is a wholly-owned subsidiary of StoneX Group Inc.