Powell's dovish comments helped stocks extend a rally that began with big gains in major technology companies, with the market notching its best "Fed Day" in two years.

U.S. stocks rebounded strongly on Wednesday, with the Nasdaq 100 up 3%. Nvidia surged 13%, adding a record $329 billion to its market value after analysts issued bullish views. In late trading, Meta soared on sales performance. Qualcomm, the world's largest seller of smartphone processors, gave a strong revenue forecast. U.S. Treasury yields fell along with the dollar, and U.S. Treasuries rose for the third consecutive month, the longest rising cycle since 2021. Bloomberg's "Magnificent Seven" index rose 3.5%. The Russell 2000 index of smaller companies rose 0.5%. Gold soared to its highest monthly closing level on record. Although crude oil has performed poorly overall this month, it has also rebounded sharply as tensions in the Middle East have escalated again.

Powell said at a news conference that officials could cut rates "as soon as September," and the Fed's statement also brought a number of changes in language. Notably, the committee shifted to saying it was "focused on risks to both sides of its dual mandate," rather than focusing only on inflation in its previous language.

Neil Dutta of Renaissance Macro Research said: "Powell's press conference was more dovish than the FOMC statement. It certainly sounded like they were just waiting for the sake of waiting. After all, by his own admission, all the data was already pointing in the direction he wanted to see! With language like this, the Fed will have to make a more significant rhetorical shift in September. I am surprised that the stock market has held up on this statement. The minutes of today's meeting and the Jackson Hole central bank meeting in August will provide more opportunities."

“Powell is getting better at not showing all his cards,” said Chris Zaccarelli of the Independent Advisor Alliance. “Ultimately, the market is banking on a rate-cutting cycle starting in September, even though Powell has repeatedly tried to keep the Fed’s options open.”

The changes in the Fed’s statement reinforce a shift in tone from several policymakers, including Powell, that recognizes growing risks to the labor market. They are also likely to reinforce expectations among economists and investors for a rate cut in September.

"Powell was eager to say 'let's do it' today, but at the same time he knew he didn't have to commit until he got more time and data," said Peter Boockvar of The Boock Report.

In the view of Ronald Temple of Lazard, the Fed has “clearly signaled” a rate cut in September. “While I believe that slowing inflation, easing labor market tightness, and slowing economic growth justified a rate cut in July, I think the case for a rate cut will be stronger seven weeks from now,” he noted.

Swap dealers still fully expect a 25 basis point rate cut in September, for a total of nearly 70 basis points for the year.

PIMCO's Tiffany Wilding said neither the Fed's statement nor Powell's speech significantly changed interest rate trends in the bond market, given that the market has fully priced in a September rate cut.

“The data has been moving in Powell’s direction and now he’s preparing to follow through,” said David Russell of TradeStation. “Nonfarm payrolls on Friday and CPI in two weeks are the next big items. If those data go well, Powell could deliver a clearer message at the annual Jackson Hole central bank meeting in late August.”

Here's more on what some Wall Street commentators and strategists are saying about the Fed's latest decision:

Leo He, trader at UBS:

“The statement was certainly more dovish than the June statement, as the Fed indicated they are now focusing on the dual mandate. But it is definitely not a complete pivot. The most dovish FOMC member, Goolsbee, voted as an alternate member at this meeting due to the retirement of Mester. Beth M. Hammack will assume the role of President of the Cleveland Fed later this month and may take over the voting role starting in September.”

Derek Tang, economist at LH Meyer/Monetary Policy Analytics:

“The statement was fairly balanced, capturing the moderation in inflation and reals nicely, while also not fueling momentum for a November rate cut. If nothing stops them from moving, September easing should still be possible.”

Ira Jersey, chief interest rate strategist at Bloomberg Intelligence:

“Overall, the Fed’s policy statement seemed in line with our expectations as it was balanced. The new wording does not mean a September rate cut is imminent. The sell-off at the front end of the curve seems justified. Powell’s press conference may be more telling than the incremental changes in the statement.”

George Catrambone, head of Americas fixed income at DWS:

“The risks are more two-sided. They will get more data to confirm the path of inflation falling, but they will wait too long to achieve a soft landing.”

Morgan Stanley economist Ellen Zentner:

“The FOMC statement included important changes in its description of inflation and the labor market, highlighting the risks to the dual mandate. The emphasis on a cooling labor market is an important shift toward a more balanced tone, and we believe it sets the stage for a September rate cut by the Fed.”

Anna Wong, chief economist at Bloomberg Economics:

“The policy statement contained very few red lines, but it sent a lot of information to investors: officials are certainly not ready to cut rates in July, nor do they want to reassure investors that a 25 basis point cut in September is a certainty, let alone the 50 basis point cut that the market has recently considered. The new statement retained language that the committee does not expect to cut rates until it has greater confidence in the downward trajectory of inflation, which is a hawkish move. However, by acknowledging the recent increase in unemployment and adding that they are now equally focused on the full employment part of their dual mandate, the FOMC did keep alive the hope of a September rate cut. We think the main reason they gave only minimal hints about an upcoming rate cut is that there is a lot of data releases before the September FOMC meeting - two more inflation and employment reports, by which time the data could change a lot. Powell will speak at Jackson Hole in late August, when he will have another month of employment and inflation data at his disposal, which would be the best time to make clear a September rate cut.”

Michael Gapen, an economist at Bank of America:

“I think it’s the right incremental move. I think the Fed feels like it’s in a sweet spot right now and the data is moving in its direction, so it’s getting close. It just needs a little bit more and then that vague confidence might come.”

Brian Coulton, chief economist at Fitch Ratings:

“The key is starting to slowly turn as the Fed prepares to open the door to rate cuts in September.”

Article forwarded from: Jinshi Data