In case you missed the headlines from yesterday:
A key communique from Powell was proper earlier than he addressed reporters for the Q&A session, wherein he stated that “my fundamental message has not modified since Jackson Hole”. And the Fed definitely backed that up with a extra hawkish dot plots projection, even when Powell stated that they do not essentially characterize “a plan or dedication”.
It just about ticked all of the bins for a hawkish takeaway and although the greenback noticed beneficial properties pull again for a bit with the long-end of the yield curve falling, we’re seeing markets preserve with a extra constant response because the mud settles. Meanwhile, equities have been punished after a short interval of reduction throughout Powell’s press convention.
There is an argument so to talk that each one of this could possibly be interpreted as peak Fed hawkishness and that as Powell sees much less probability for a mushy touchdown, ultimately a much bigger shock to the financial system may see the central financial institution pull again on tightening additional. In different phrases, the Fed needs to get in as a lot as they will – as shortly as they will – to be able to cease inflation earlier than the thought of a Fed pivot begins to turn into extra than simply an afterthought.
For now although, there isn’t a change to the narrative and with the Fed doubtlessly on the lookout for increased charges for longer – even perhaps past 4.75% – that is sufficient to preserve the operating theme in markets. With the greenback seeking to push recent upside legs in opposition to the euro, pound, loonie, aussie, and kiwi, it is powerful to battle in opposition to the momentum and a break above 145.00 in USD/JPY will solely serve to exacerbate the beneficial properties for the buck.