Summary and personal interpretation of Powell's speech
(Interpretation is personal opinion, the top is the content of Bao's speech, the bottom is interpretation)
Western traders believe that Powell's speech tonight will provide more information that will help the September rate cut. Let's take a look at what Powell said and make a brief interpretation.
1. Federal Reserve Chairman Powell: Economic growth is expected to slow down this year and inflation will continue to make progress.
Interpretation: Affirms the current work results of the Federal Reserve and its control over the economy, while emphasizing economic stability.
2. No signal will be given today regarding any particular meeting, and decisions will be made based on evolving data and outlook. We will not allow politics to factor into our decisions.
Interpretation: Three paragraphs, continuing the style of last week, first blocking the policy orientation issues that may arise in this speech, and at the same time highlighting the "independence" of the Federal Reserve mentioned last week by not adding political factors into decision-making. It seems that Powell also understands the market factors' concerns that the Federal Reserve will change its regulation due to the election. Powell has continuously emphasized this issue from last week to now.
3. Now that inflation has fallen, the focus will be on the Fed’s dual mandate.
The key point is that although inflation has declined, the Federal Reserve still has a dual mission, which may become an interface that hinders interest rate cuts.
4. If the Fed waits until inflation reaches 2% before cutting interest rates, it will be waiting too long.
It is a typical case of giving a sweet reward after a blow, which will also boost market sentiment. The downward trend will not last too long. After all, according to expectations, 2% inflation may take the next 2-4 years to achieve.
5. Usually, the possible (interest rate) outcomes are known before the FOMC meeting.
The point of this sentence is not to emphasize that a signal will be sent before a rate cut, but more importantly, it indicates that there will be no rate cut in July. During the same period, swap rate bets on a rate cut in July decreased.
6. I have long argued that there is a path to lower inflation without the kind of labor market pain that has been typical of past tightening cycles.
This sentence is more complicated. If it is interpreted pessimistically, it means that Powell believes that there is a "foolproof" solution that can reduce inflation and ensure the normal operation of the job market. If it has not been found, does it mean that we still need to look for such a solution?
7. At present, the "hard landing" scenario is not the most likely one.
Just to boost the US economic trend, this sentence is not very meaningful and can be understood as "political correctness"
8. When the Fed is confident about inflation, it is time to act.
This statement belongs to the "grandmaster" of Tai Chi. At the beginning, it emphasized that the interest rate would not be cut until inflation reached 2%, and now it says that there is confidence in inflation. How to evaluate this confidence? Who has the final say?
9. The Eurozone has experienced a long period of low growth and is currently in a different position from the United States.
The subtext of this sentence is that although interest rates have been cut in Europe, the situations in each region are different and are not the main driving force behind the Fed's rate cut.
10. The Federal Reserve has used ChatGPT to generate questions that might be asked at press conferences, but it has not yet been used for monetary policy.
Discussions about AI appeared in last week's speech, but there was no explicit statement last week that the Federal Reserve was using AI. This time, the AI office was directly disclosed.
11. What worries me right now is the balance of risks to the economy. It is very important to formulate the right policy. I am concerned about the level of US deficits "for a long time", but it is not the job of the Fed to provide advice to Congress. We really need to start addressing the unsustainable deficit problem.
The government's fiscal deficit issue was mentioned again. This topic was also hotly discussed last year, but no one seems to have mentioned it since the interest rate cuts were stopped. The continuously growing deficit is like a "bomb" hidden in the economy. Powell himself is aware of this. At the same time, it can be seen that part of his concerns about the future economy also comes from the deficit issue.
12. Hopefully, the deficit issue will be a “top priority” for the next term of office and bipartisan action must be taken.
In conclusion, it seems that Powell is still under a lot of pressure during Trump's term. The subtext of the bipartisan cooperation here is that Trump alone may not be able to solve this problem. The fiscal deficit has always been like an explosive "ball" that has been kicked around by successive governments. It is indeed a big problem and a thankless problem.
End of speech:
Overall, Powell's speech today was neutral, and the expectation of a rate cut in September that Wall Street traders had previously thought was possible did not come. The possibility of a rate cut in July and August has been greatly reduced. However, Powell said something that we should pay attention to: there should be relevant signals before the FOMC meeting, and it depends on how long in advance the signal is given.
In the market, the US stock market started to pull back slightly and has gradually moved closer to the opening price. The gains before the meeting were slowly covered. International gold fell in response and did not set a new record high, but it still maintained a high of 2420. The crypto market remained stable and did not follow the decline, which is a good thing!
#BTC☀ #美联储降息周期 $BTC
