Investors waited breathlessly for Powell's speech.
But what could the chairman of the Fed say that was so new? Suddenly announce a softening of the hawkish agenda?
In a nutshell, the substance of the speech is that inflation is slowing, but the cycle of rate hikes continues. Even with the strong report on the labor market, no harsher steps are in sight. That's already a good thing. What's good, though?
The policy stays the same, but there is growing confidence that more rate hikes are on the horizon, most likely to the 5.25% level.
The rest of the Fed members have a similar stance.
According to Neel Kashkari, head of the Federal Reserve Bank of Minneapolis, there is no reason to change the trajectory of monetary policy yet. Earlier, the hawkish supporter had predicted a rate hike to 5.4%. The reason for such a tough stance is not only the low unemployment rate, but also the extremely "active" service sector and the rapid growth of wages.
Atlanta Fed President Rafael Bostic (not a voting member of the FOMC) still anticipates a rate hike to 5.1% and keeping it at that level through 2024. However, he does not rule out the regulator having to raise the rate even more.
And what are the money managers saying?
Citigroup Inc. does not rule out a rate hike to 6%. Against that backdrop, the S&P 500 could fall below the 3,500 mark in the next 3-4 months, and the U.S. dollar could see further gains. Although I think the folks at the City are clearly exaggerating.
What about the markets?
And the markets continue to hope for something. Technically the important 4090 level was held and by the end of the day we even saw a pullback to 4160.
Are the markets really living a life separate from the economy?
There is only one word for everything that is going on: chatter.
▪️ UST10 yields are bouncing at 3.65-3.67.
▪️ The DXY dollar index is also going nowhere at 103.3.
▪️ Gold remains in place.
Better not to be overly active in a market like this. I think it's worth waiting for a while. The markets obviously don't want to fall and keep hoping for a miracle.
But is everything ready for another move up? I'm not sure. Right now we can't rule out a new drawdown of about 3-4% or a gradual move up to the level of 4300-4350.
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