“Powell Pivot Is Complete” – “Time Has Come For Policy To Adjust”

Fed Chair Says Gold, Stocks, Bitcoin, & Bonds Surge

Summary: Powell’s comments confirmed that a September rate cut is coming, as he said “the time has come for policy to adjust”, with traders on the lookout for clarity regarding the magnitude of the cut. Commenting on [Powells Wyoming] speech, WSJ’s Nick “NIkileaks” Timiraos put it best: “The Powell pivot is complete” and notes the following:

Powell is dovish across the board—from the same stage where he two years ago signaled the Fed would accept a recession as the price of restoring inflation:

• “The cooling in labor market conditions is unmistakable.”
• “It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon.”
• “We do not seek or welcome further cooling in labor market conditions.”
• “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
• “We will do everything we can to support a strong labor market as we make further progress toward price stability.”

Powell unfurls his narrative on the causes of and behaviors of inflation since 2020. Recognizing not everyone will agree with his framing, he concludes with this:

• “That is my assessment of events. Your mileage may vary.”
• After recounting the series of judgments that led officials to describe inflation as likely to be transitory, Powell observes how widely shared these views were outside the Fed:
• “The good ship Transitory was a crowded one.”

On the labor market, the Chair said “We do not seek or welcome further labor market cooling”, which once again shows the importance of the US jobs report on 6th September which will seemingly dictate the size of the move by the Fed. as Timiraos noted earlier in the wake that a report as week as July might lead to a larger than 25bps cut.

Powell continued to note how the Fed’s attention has shifted within its dual mandate, as it stated “the balance of risks to our mandates has changed and upside risks to inflation have diminished, downside risks to employment have increased.”

Lastly, the Chair reiterated data-dependency noting that “timing and pace of rate cuts will depend on data, outlook, balance of risks”.

In reaction, markets saw a broad-based dovish reaction, with upside in Treasuries and stocks alongside downside in the Dollar. Note, Fed money-market pricing was little changed with still 32bps for September and 97bps by year-end.

Watch Powell here:

Tl;dr: Powell confirmed what was in The FOMC Minutes

“The time has come for policy to adjust,” Powell said:

“The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook and the balance of risks.”

Labor market fears dominate…

“We do not seek or welcome further cooling in labor market conditions,” Powell said, adding that the slowdown in the labor market was “unmistakable.”

Whatever it takes?

“We will do everything we can to support a strong labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market. The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.“

The Fed chief also acknowledged recent progress on inflation, which has resumed moderating in recent months after stalling earlier in the year:

“My confidence has grown that inflation is on a sustainable path back to 2%,” he said

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Header featured image (edited) credit: Powell/Youtube grab from article

Emphasis added by (TLB)

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