Investors detect dovish undertones to Powell’s campaign against inflation – Tech Tip Hub

The Federal Reserve will tackle the highest inflation in roughly 40 years, as one of his most challenging tasks has been doing to the US central bank’s commitment.

Moving about “steadily” in a tighter monetary policy setting, the Fed chair has embraced moving “expeditiously” towards “negative” rates economy.

Powell repeatedly invoked the message at the press conference Wednesday’s rate decision, which he described as the Federal Open Market Committee’s rationale for raising the federal funds rate by half a percentage point since 2000, to a new target range of 0.75 to 1 per cent.

But even as the Fed embraced a much more aggressive approach to tackling elevated inflation, investors detected dovish signals that were expected to have a lower-than-powerful central bank.

Heading into the meeting, the odds of the Fed delivering a 0.75 percentage point rate increase are the creeping higher, as the traders bet the Fed would keep all options on the table as it stepped up to its response.

When asked about the possible press conference, Powell said he ruled out such a large adjustment and instead signaled half-point rate rises in the next two meetings.

That sent US stocks soaring, with the S&P 500 and technology-heavy Nasdaq Composite both closing roughly 3 per cent higher. Government bonds are also rallied, with the yield on a two-year Treasury note, which is more sensitive to central bank policy, dropping 0.13 percentage points to 2.64 per cent.

“Do I think that Jay Powell entered the press conference on his list of objectives to ease financial conditions? I don’t, ”said Nathan Sheets, global chief economist at Citigroup and a former under-secretary at the US Treasury.

“I don’t think you should compare it to other Fed meetings or Fed rhetoric over time, but this is a dovish Fed, but when you compare it to some of the market and some of the worries. The market, it was not as hawkish as some had feared. ”

Anneta Markowska, chief financial economist at Jefferies, said: “The stock market is rallying ignored.” more hawkish policy path.

“Everything’s rallying, but the more the markets are looking, the more the Fed is going to actually have to lean against it,” she warned.

Liz Ann Sonders, chief investment strategist at Charles Schwab, added that “it must be persistent and” froth “returns to the market, the Fed will have to go” a little bit harder “to tighten financial conditions.

Powell also has a shortfall of interest rates that need to be raised to a level that is actively constraining economic activity, bringing order to a core inflation – running at an annual pace of 5.2 per cent, according to the central bank’s preferred metric – with its longstanding 2 per cent target.

Instead, he only admitted it was “absolutely possible” that the Fed “can’t know that today.” He added, however, that if warranted by the data, the Fed “will not hesitate” to do so.

“The reality is that they will have to go slow in order to slow down the economy,” said Seth Carpenter, who spent 15 years at the central bank but is now the global chief economist at Morgan Stanley. “The tricky part is slowing it down too much, without slowing it down so much that it tips over into a recession.”

What exactly is the neutral rate of complicating matters today? Fed officials broadly view neutral to be about 2 and 3 per cent, when inflation is at 2 per cent, but some economists argue it is now much higher – as much as 5 per cent – given the magnitude of price pressures.

Despite that challenge, Powell wavered from a little bit of his earlier optimism that the Fed could achieve a “soft or softish landing”, not least because of the strength of household and corporate balance sheets.

“It just seems like this is the kind of fictional Goldilocks scenario that’s going to have some fidelity to the Fed without having to overdo it,” Markowska said. “It doesn’t really add up to be honest.”