DXY still looks strong and EUR weak:
AUD was hammered to the lows:
CNY is a baby seal waiting for the hunter:
Oil and gold popped:
Dirt was hosed:
Miners fell:
EM stocks too:
And junk:
As Powell crushed the curve:
Stocks managed moderate gains:
Goldman has the J-Hole wrap:
1. After avoiding the language in the July press conference, Powell once again argued that the FOMC should “proceed carefully” when deciding whether to hike or hold the policy rate constant at future meetings. When “careful” was introduced at the June meeting, it was widely taken to mean that the FOMC envisioned hiking at an every-other-meeting pace, and we take its revival today to mean that the FOMC does not intend to hike at the September meeting.
2. Relative to the July press conference, Powell was slightly more hawkish when characterizing the risks to the outlook, saying that the FOMC is “attentive to signs that the economy may not be cooling as expected.” Powell noted that “the housing sector is showing signs of picking back up” and that “additional evidence of persistently above-trend growth could put further progress on inflation at risk and could warrant further tightening of monetary policy.” While the FOMC expects the labor market to continue rebalancing, Powell caveated that “evidence that the tightness in the labor market is no longer easing could also call for a monetary policy response.” Over the course of this year, we have continued to flag that the risks to growth are skewed toward reacceleration—not recession—which could threaten the progress achieved so far toward rebalancing the labor market if growth fails to remain below potential for long enough.
3. Powell balanced his hawkish characterization by noting that there is uncertainty about the duration of the lags with which policy tightening affects activity and inflation. He cited that the “wide range of estimates of these lags suggests that there may be significant further drag in the pipeline.” Our extensive review of economic studies suggests that the lags with which financial conditions affect growth are relatively short, and both the Fed staff’s new estimate of the financial conditions impulse and our own estimate suggest that the drag on growth is fading sharply. However, we agree that there are longer lags between monetary policy and inflation, and that there is substantial disinflation in the pipeline.
4. Powell did not provide strong views on the neutral rate, instead choosing to say that “we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint.”
5. We continue to expect that the FOMC will ultimately decide that further policy tightening is unnecessary, making the hike at the July FOMC meeting the last of the cycle.
I agree. The issue for forex is that China and Europe are considerably worse.
DXY higher. CNY, EUR and AUD lower.
