Powell fired a shot at the market?
Highlights from Powell’s speech in Dallas in the early morning:
Labor market indicators returned to more normal levels consistent with the Federal Reserve's maximum employment goal;
Inflation will continue to decline towards our 2% target, albeit with occasional bumps;
The interest rate path is not preset, but depends on the data and economic outlook. If the data tells us to slow down the rate cuts, it would be wise to slow down.
Congress generally believes that the independence of the Federal Reserve is very important. It is too early to draw conclusions about the Trump administration's policies. The Federal Reserve will act cautiously before it is more certain about its policies.
Compared with previous speeches, it is indeed much tougher, especially when it comes to the fact that inflation will bump up towards 2%. On the one hand, it expresses concerns about the recurrence of inflation, and on the other hand, it also implies that the anti-inflation target should still be 2% (responding to the market's previous belief that the inflation target can be raised to above 2%).
More importantly, the attitude of not rushing to cut interest rates shocked the market. Both U.S. stocks and Bitcoin accelerated their decline when Powell spoke.
Personally, I think Powell is still managing expectations, with the aim of reversing the market's most optimistic expectations of a rate cut. We have talked about this many times before, and it is very easy for the market to get ahead of the market this year. If the run-ahead is too serious, it will lead to high emotions, and the wealth effect will not be conducive to the downward trend of inflation. After all, inflation has rebounded slightly in October, although it is in line with expectations.
This speech is equivalent to shifting the market's focus from employment risks back to the balance between employment and inflation. Another thing is that no matter what kind of pressure the Fed will face after Trump takes office, at least Powell has always made an independent gesture, otherwise it will jeopardize the Fed's credibility.
In particular, the market expects the Fed to accelerate rate cuts in the future due to pressure, which is also the expectation mentioned above that the earlier and faster the run-up, the worse it will be for inflation to reach the target. Therefore, it is important to see what the November employment and inflation data released in December will be like.
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