Explaining the Market's Reaction to Jerome Powell's Speech

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The shift in Fed Chair Jerome Powell's tone is important to note because it tells that rate cuts are coming almost no matter what the data say.

Yesterday, Jay Powell and the FOMC gave us their decision on interest rates. In the accompanying statement and the subsequent press conference given by Fed Chair Jay Powell, they explained to some extent how they arrived at that decision and, more importantly, they also explained how they see the rest of the year panning out. As I’m sure you are aware, that news was greeted with glee by equity traders, with all three major stock indices jumping to record-high levels in yesterday’s session.

Traders were therefore worried the FOMC would take a more hawkish stance at this meeting. They didn’t. In fact, if anything, a parsing of the language used by Powell suggests that the committee are even more committed to that path than they were before. As Seema Shah, Principal Asset Management’s Chief Global Strategist put it when interviewed by CNBC, the wording yesterday suggests that “…he Jay Powell needs a good reason not to cut rates, rather than a reason to cut rates.

 

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