I’ll admit, this has been an incredibly hard blog to write, much more so than previous ones in far worse circumstance.
I took the time to go back to watch the video of the press conference again. On second viewing, without the emotion of the market tanking, it wasn’t as bad as you’d think.
Powell was repeatably pressed about the future of rate policy, and if you listened closely enough, he told you exactly what the next course of action was. Was he cage, did skirt around the topic? Sure. He really did his best to play poker and not show his hand.
Reading Between The Lines
Read between the lines people! He told us that the Fed would cut rates again in September. I’m not joking, listen to the press conference again.
3 Data Points
Powell laid out precisely what data he would be watching: Trade, Global Growth, and Inflation. Trade talks are not going well, Draghi just told us last week that Europe is in the tank, and yesterday the PCE reading was around 1.5%. All three of those data points get a checkmark for meeting the criteria of another rate cut or two.
Did he layout it in an easy to understand way? No. Powell didn’t say: “Sure, we are going to cut; go enjoy the summer now.”
A Mid-Cycle What?
Powell used a term that perhaps investors aren’t familiar with a mid-cycle rate cut around the 6-minute mark. When you listen to some of his future answers, he talks about precisely what that is, specifically at the 18-minute mark. He spoke of other times when the FED cut rates in the middle of a cycle, as OPPOSE to a long-term cutting cycle. He is trying to tell you that we are in a period that is similar to that of the mid-1990s. He is also saying we are not in a period where we are entering a recession. At the 24 minute mark, he talks about shifting to a more accommodative stance, i.e., cutting rates.
At the 32 minutes mark, he explains it slightly better. I will paraphrase: Yes we will give you a couple of more rate cuts, but it isn’t because we are heading to a recession, so don’t expect 5, 6 or 7.
In plain English, there was nothing in today’s press conference or statement that would suggest the Fed is one and done. I’m sorry I don’t see it. I think it may take a day or so, but over time the market will digest this and realize what I have tried to layout here.
I’ll be watching bonds and the dollar.
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