“There was a real discussion for moving at this meeting,” Powell
“There was a real discussion for moving at this meeting,” Powell
That’s the main takeaway and came about halfway through Powell’s press conference. Does anything else matter? The statement was mildly hawkish, but Powell was full dove. More dovish than I expected.
The Fed is cutting in September. Read Powell’s comments below and tell me the Fed isn’t cutting in September.
Q&A with Chairman Powell
Is there a growing sense of confidence that you could move at the next meeting?
“No question that’s the case”
Is this just your opinion or is this view shared by others?
“The broad sense of the Committee is that we are moving closer to that point, but not quite at that point yet.”
Could the first cut be a 50bps cut?
“That’s not something we are thinking about right now….of course, we haven’t made any decisions.”
How about inflation?
“Inflation has eased substantially.”
How do you feel about the labor market?
“We are watching the labor market quite closely.” He said repeatedly the labor market has cooled substantially.
Government hiring is making up a large portion of hiring, is that something you pay attention to?
“There has been a narrowing base of job creation and to your point, you do look at private demand extra carefully.”
Given the long and variable lags, could the Fed be behind the curve if the economy weakens?
“We are very well positioned for weakness with the policy rate at 5.5%.”
Is it possible for the Fed to remain apolitical with a rate cut in September, just two months before an election?
“I absolutely do.”
But then he caught himself and inserted a caveat that no decisions about September have been made. Felt like the same slip he made as the Fed approached a pause because he got tripped up on a question about skipping meetings.
He spent a lot of time talking about a deteriorating labor market, which means Friday’s job report could move rates more than it usually does. But I think it’s asymmetric. A strong report may be partially overlooked, while a weak one could cause the 10T to break below 4.0%.
Before the next meeting on September 18th, we will have Jackson Hole 8/22 - 8/25. Not only will Powell likely confirm the cuts, but I think he might start signaling about what the easing cycle will look like (every meeting, every other meeting, landing spot, etc).
Rates down across the curve about 6-7bps. Markets have a 72% probability that Fed Funds is 4.75% or lower by year end. This time next year, there’s just a 23% probability that Fed Funds is still 4% or higher.
The 10T is 4.07% right now, with ranges below:
Technical ranges
High side: 4.12%, then 4.33%, then 4.51%
Low side: 4.03%, then 3.81%
Talk to you Friday after the jobs report.
