Is Powell dovish or hawkish? The answer is he is both. And it’s intentional. Part of the Chairman is looking in the rear-view mirror (strong jobs, GSP growth, wage pressure and inflation); and part of him is looking ahead (weaker growth; falling jobs; lower inflation). He straddles both sides. But what she he pay more attention to? The answer is the latter – but he can’t ignore the former. That said, I also think the Chair’s choice of language was interesting. He believes above trend growth and strong jobs are what’s causing inflationary pressure – maybe in part. But I will argue it’s the lagging effect of monetary policy… when you increase money supply by 40% in just 2 years.
Fed Reserve
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Fed: We’re Not Finished Hiking
Let’s start with a quick quote from yesterday’s missive: “From mine, Powell will deliver a hawkish tone leaving the door wide open for further hikes in November or December if needed”. That’s exactly what he said. From my lens, Powell sounded hawkish today – reminding investors they are are not done hiking. Not yet. And if I’m to be blunt – he has sounded hawkish at every meeting this year. But investors will often choose to hear what they want to hear. Be conscious of what biases you have. The script is higher for longer and the market is yet to adjust. It will.
Fed Trying to Thread a Narrow Needle
Tomorrow we will hear from the Fed. It’s very unlikely the world’s most influential central bank will raise rates this month. However, it’s my view Jay Powell is not about to drop any dovish hints. Remember: just because they may be closer to the end of rate hikes – that doesn’t mean they are about to cut. Rate cuts are dovish. However, rates staying higher for longer is hawkish. And as inflation comes down, this means real rates are rising (with the Fed on hold). From mine, we hear a hawkish Fed tomorrow. And the market has not priced that in.