Powell's "hawkish" voice! US stocks plummeted, the dollar hit a new high this year, and expectations for rate cuts plummeted! Powell's speech this time obviously poured cold water on the market - after he revealed that the Fed was not in a hurry to cut interest rates, the US stock market closed almost close to the intraday low, while the US dollar and US bond yields soared in unison. The ICE dollar index once broke through the 107 mark, hitting a new high this year, causing the market to fall into a state of shock. In his speech, he made it clear that there was no sign that the US economy needed an emergency rate cut, and although inflation had declined, it was still some distance away from the 2% target. This means that the Fed's monetary policy is still cautious and will continue to pay attention to changes in the labor market and inflation data. Powell's words caused the market's expectations for a December rate cut to drop sharply from 80% to 50%. In the short term, US stocks fell sharply, with the Dow Jones Industrial Average falling by 0.5%, the S&P 500 and the Nasdaq falling by 0.6%, setting the largest single-day decline this month. At the same time, the U.S. Treasury yields rebounded significantly, especially the 2-year U.S. Treasury yields, which rose 8 basis points to 4.36%.
The "new storm" in the global market is coming, and the strong rebound of the U.S. dollar has put the market under unprecedented pressure.
All this has made investors begin to re-examine the expectations of interest rate cuts in December. Although the Federal Reserve has cut interest rates twice in a row, Powell's hawkish remarks have clearly made the market feel the pressure of slowing down the pace of interest rate cuts. JPMorgan Chase's chief U.S. economist also pointed out that Powell's speech implies that the Federal Reserve may slow down the pace of interest rate cuts before March 2024.
Judging from the economic data, there does not seem to be much room for interest rate cuts. The recent number of initial jobless claims in the United States has fallen to a six-month low, consumer and producer prices have generally been stronger than expected, and inflation is still above the 2% target.
So the question is: If Powell continues to maintain a hawkish stance, how will the market react? Even if the market has expected a rate cut, strong economic data and continued high inflation seem to make the path to a rate cut less smooth.
It seems that the expectation of a rate cut in December may have to be reassessed. Follow Lao Chen, you definitely don’t want to miss out on future market trends!
